Why Do Public Firms Issue Private and Public Securities?

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Abstract
We examine public firms' issues of private and public debt, convertibles, and common equity securities. The market for public firms issuing private securities is large. Of the over 13,000 issues we examine, more than half are in the private market. We find that asymmetric information plays a major role in the choice of security type within public and private markets. Conditional on issuing in the public market, firms' predicted probability of issuing equity declines and issuing debt increases with measures of asymmetric information. We find a weak reversal of this sensitivity in the private market. We also find large differences in the sensitivity of security issue decisions to market timing, risk and investment opportunity variables in public and private markets. Our results point to a potentially important unexplored dimension of capital structure - the public-private funding ratio in addition to the debt-equity ratio.

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