During the last decade, the capital market in India—both primary and secondary—had witnessed significant progress. The primary market provides a platform to the companies to raise fresh capital. The average annual capital mobilization from the primary market has grown manifold in the last two decades, from Rs. 1,704 cr in 1990-91 to Rs. 25,526 cr in 2004-05. Number of companies going for Initial Public Offerings (IPOs) followed a similar trend (Appendix 1, Table 1). A steady level of activity in the primary market is necessary for the overall functioning of the capital market. The volatility in the volume of new issues can affect liquidity, size and depth of the capital market which can ultimately affect investment opportunities. Hence, it is very important for the investors, policymakers, stock exchange authorities, and finance researchers to understand the determinants of ‘going public’ decision. The study’s findings are expected to facilitate a better understanding of the going public decision among the various stakeholders and thereby motivate more companies to go in for IPOs.

A traditional view in corporate finance is that companies access public equity market via IPOs1 to raise equity capital to finance their growth. However, recent empirical evidences have led researchers to question whether raising equity capital is the only purpose of an IPO. There is a growing literature that shows that raising capital through the equity market is not the only reason behind going public. However, actual motivations illustrated by these studies differ from each other. Pagano et al. (1998) found rebalancing of capital structure to be a major motive behind going public. Greenwood (2005) observed that companies make IPO to take the advantage of the period when the companies in the same industry are overvalued. Brau and Fawcett (2006) concluded that acquisition is a major motivation behind going public. Brau et al. (2005) revealed that companies go for IPO to enhance their reputation in the market.