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Debt retirement at IPO and firm growth

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  • Fan, Pengda

Abstract

This paper examines whether debt retirement at the time of initial public offering (IPO) can stimulate firm growth. Our findings demonstrate that highly leveraged firms tend to use the proceeds of IPOs to repay more existing debt. Then, increased debt capacity and reduced interest burden enable firms to expand their businesses. Firms that retire more debt also present better performance in the long-term. These results indicate that firms that have previously been labeled low-growth firms can achieve high growth in the post-IPO period by conducting debt retirement.

Suggested Citation

  • Fan, Pengda, 2019. "Debt retirement at IPO and firm growth," Journal of Economics and Business, Elsevier, vol. 101(C), pages 1-16.
    • Handle: RePEc:eee:jebusi:v:101:y:2019:i:c:p:1-16
    DOI: 10.1016/j.jeconbus.2018.08.004
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    More about this item

    Keywords

    Debt overhang; IPOs; Debt retirement; Firm growth;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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