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Debt maturity and initial public offerings

Author

Listed:
  • Yomna Abdulla

    (The University of Manchester)

  • Viet Anh Dang

    (The University of Manchester)

  • Arif Khurshed

    (The University of Manchester)

Abstract

We investigate the effect of initial public offerings (IPOs) on the evolution of debt maturity by tracking a sample of US firms that went public over the period 1998–2011. Our findings reveal a significant and permanent increase in debt maturity post-IPO. The short-term debt ratio drops by nearly a fifth in the first 2 years after the IPO. These findings are economically significant and robust to controlling for the endogeneity in the listing decision. However, the lengthening of the post-IPO debt maturity is only evident in small, high-growth, and highly levered firms. This finding lends greater support to asymmetric information models than theories based on the agency costs of debt. There is some support for the argument based on the agency costs of equity as the IPO effect on debt maturity is only significant for firms with a high dilution ratio. Finally, the IPO effect varies with macroeconomic conditions as the increase in debt maturity post-IPO was most pronounced during the recent financial crisis of 2007–2008.

Suggested Citation

  • Yomna Abdulla & Viet Anh Dang & Arif Khurshed, 2016. "Debt maturity and initial public offerings," Review of Quantitative Finance and Accounting, Springer, vol. 47(4), pages 1129-1165, November.
    • Handle: RePEc:kap:rqfnac:v:47:y:2016:i:4:d:10.1007_s11156-015-0533-1
    DOI: 10.1007/s11156-015-0533-1
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    More about this item

    Keywords

    IPO; Capital structure; Debt maturity; Short-term debt; Asymmetric information; Agency costs;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • 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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