Why do private firms stay private? Empirical evidence on this issue is sparse, as most private firms in the U.S. do not report their financial results. We investigate why private status matters by taking advantage of a unique dataset of large, leveraged private firms with SEC filings. Unlike a number of other studies, we find that neither the existence of growth opportunities, nor the desire of firm founders to diversify, is a principal determinant of the decision whether or not to retain private status. Rather, the existence of private benefits of control appears to serve as the most significant incentive to stay private. Family-controlled firms have significantly lower probabilities of filing for an IPO, while a board structure that grants management relatively more autonomy lowers the probability of an IPO filing as well. Cross-sectional analysis of profitability and ex post performance suggests that while private benefits of control may encourage firms to stay private, they do not have detrimental effects on firm efficiency. In contrast, firms controlled by private equity specialists appear to place a low value on control benefits and are likely to go public as a means of cashing out.

This paper investigates close bank–firm relations (keiretsu) among troubled Japanese firms by examining the type of bankruptcy. In Japan, creditors control the fate of the bankrupt firm, which may be costly if managers destroy firm value to avoid bankruptcy or, alternatively, if creditors liquidate too often. Recently, researchers have argued that keiretsu banks prop up weak firms that should fail. We find that bankrupt firms affiliated with keiretsu banks are neither subject to excessive liquidation by overly powerful banks nor slower to be liquidated. Keiretsu banks liquidate via the courts often, perhaps to avoid political repercussions and organized crime.