Why Do Companies Go Public? Empirical Evidence from Germany's Neuer Markt

Comparing the balance sheet structure of privately held German firms and companies which went public on Neuer Markt, Europe's dominant stock market segment for growth firms, we analyse the determinants of initial public offerings (IPOs) of technology-based firms. The likelihood of an IPO is increasing in the proportion of intangible assets as well as R&D intensity. IPOs are more likely for firms that grew and invested a lot. Leverage is only significant in year two before flotation and increases the probability of going public. We conclude that issuers on Neuer Markt are in urgent need of equity capital to fund new investment. The analysis of the companies that went public in other stock market segments on Frankfurt Stock Exchange shows that these IPO were realised at a time when the issuers were in sound eco-nomic and financial conditions. In a second step, the evolution of ownership and control around the IPO is analysed. The controlling shareholders of the Neuer Markt companies, most often board members, keep tight control over the firm's assets even after flotation. Founders continue to hold a significant stake of voting equity and keep up to be strongly represented in the firm's management and supervisory board. Board members typically use the IPO not only as a vehicle to get new funding without any significant loss of control due to a dispersed allocation of sold shares. They even consolidate control as the relative size of their blockholding - in comparison with the other blockholders' stakes - increases.