This study examines why there has been a sharp fall in the number of U.S. trade sales rather than IPOs becomes more prominent in recent years. problem associated with a wealth constrained entrepreneur who derives private benefits from running the rm. Considering the contingent state of nature of good or bad business environment for newly venture enterprises, we present and empirically test the next two propositions: 1) under an unfavorable business environment for startups, regardless of whom the corporate control is, the firms will not go public and 2) by giving the venture capital control in the bad state, the entrepreneur is able to guarantee him a higher return, and this leads to having fewer IPOs when the economy is in the bad state for newly established firms. Accounting for the endogeneity of a firm's choice to go public, we find strong evidence that staying private induces higher value improvement when lers are acquired. This result is mainly driven by venture capital investment. Our results suggest that the negative management environment for new venture to operate as an independent entity via the IPO, which has been dominant since 1996, has brought the situation where the VC investor obtains corporate control mainly with the expansion of the private capital market. Therefore, the exit through trade sales rather than IPOs becomes more prominent in recent years.​

JEL Classification: G10, G15, G34
Key Words: Stock market listing, Private firms, IPO, M&A