| The paper is concerned with the choice of the stock ownership structure (private or public incorporation) by the initial owner of a firm. The firm is mature, in the sense that a hired manager plays also a crucial role in the production process. The initial owner is able to monitor the manager by getting involved in the firm, contrary to 'outside' investors. Going public allows the owner to partly divest and diversify his portfolio. Moreover, managers can be indirectly evaluated by the market (the secondary market price may reveal additional information on management performance). There is however a cost: the initial owner of the firm reduces his stake in the company, and thus his involvement. A coordination failure in the decision to float the shares of the company arises if firms' initial owners cannot borrow to buy shares, or if the ''quality'' of information contained in the prices indirectly depends on the number of firms listed (for instance if prices contain elements of relative performance evaluation). The model implies that firms are more likely to be listed on the stock market when profits depend relatively more on ''managerial skills'' than on ''entrepreneurial skills'' (i.e. the specific skill of the initial owner of the firm). It provides also qualitative predictions on the productivity impact of the emergence of a stock market. |