Theory of exit choice: IPOs vs acquisitions with differential bargaining

Abstract

This paper introduces differential bargaining into the Bayar and Chemmanur (2011) model of exit choice between IPOs and acquisitions and shows that a mixed strategy equilibrium can exist for both high (H) type and low (L) type firms. Using the concept of signaling games and perfect Bayesian equilibrium, we prove for the first time in a theoretical framework that PE investors are inclined to take more type H firms public than entrepreneurs.