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.

Using earnings conference calls, we investigate banks’ views of the Troubled Asset Relief Program (TARP) to understand why TARP generated so few loans. We find that banks generally regarded TARP favorably and many mentioned using TARP funds to make loans. However, actual loan growth fell well below expectations based on prior capital ratios, even among banks that publicly committed to lending. Other banks highlighted that the funds would improve their capital ratios. We show that these perspectives are largely unrelated to banks’ ex-ante financial characteristics, but instead reflect the evolving conditions during the crisis period. These shifts are consistent with a large decline in the fraction of banks that commented on the favorable pricing of the preferred stock over time. Our findings suggest that banks primarily used TARP funds to strengthen capital ratios, partly driven by CEO career concerns. Weak loan demand and evolving market conditions also contributed to the sluggish loan growth following the TARP injections.

Larger bonds offer greater liquidity, which should reduce their yields. A simple way for firms to reduce financing costs is to sell bonds with large face values. We find that mega-bonds are more liquid than smaller bonds. However, offering yield spreads on mega-bonds are not lower and are higher than spreads of bonds issued by similar companies. The discount applied to large new issues is consistent with price pressure effects that are also present in the secondary market prices of the issuing firm's existing bonds. Our results suggest a hidden cost to issuing very liquid bonds.