The role of the stock market varies greatly across countries. In Anglo-Saxon countries, the stock market plays a more important role in financing and monitoring companies and in reallocating corporate control than in continental European countries. One of the main differences between market- and bank-oriented capitalism lies in the proportion of companies listed on the stock exchange. In most of continental Europe only a few large, mature corporations are listed, while in Anglo-Saxon countries the resort to the market is widespread, especially for young companies. But even within the developed financial markets of the United Kingdom and the United States some large companies are not public.

In Discussion Paper No. 1332, Research Fellow Marco Pagano, Fabio Panetta and Luigi Zingales empirically analyse the determinants of an initial public offering (IPO) and the consequences of this decision on a company's investment and financial policy. The paper compares both the ex-ante and the ex-post characteristics of IPOs with those of a large sample of privately held companies of similar size. It is found that: (i) the likelihood of an IPO is positively related to the market-to-book ratio prevailing in the relevant industrial sector and to a company's size; (ii) IPOs are followed by an abnormal reduction in profitability; (iii) the new equity capital raised upon listing is not used to finance subsequent investment and growth, but to reduce leverage; (iv) going public reduces the cost of bank credit; and (v) it is often associated with equity sales by controlling shareholders, and is followed by a higher turnover of control than for other companies.