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Interest Rates and Initial Public Offerings

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  • Boyan Jovanovic
  • Peter L. Rousseau

Abstract

We study the relation between IPO investment and the rate of interest. We model the IPO timing decision and show that the implied relation between interest rates and investment is non-monotonic, and the data support the implication. At low rates of interest firms delay their IPOs. This happens because during the pre-IPO period the firm forgoes earnings that do not matter as much at low interest rates. The 1950's and early 1960's, especially, were periods of very low real interest rates, and IPO investment was low, with firms delaying their IPOs significantly. A qualitative difference seems to exist between investment of IPO-ing firms and the investment of incumbent firms which is decreasing in the interest rate, as neoclassical theory predicts.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10298.

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Date of creation: Feb 2004
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Handle: RePEc:nbr:nberwo:10298

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  1. Shleifer, Andrei, 1986. "Implementation Cycles," Scholarly Articles 3451303, Harvard University Department of Economics.
  2. Gian Luca Clementi, 2000. "Ipos And The Growth Of Firms," Computing in Economics and Finance 2000 Z133, Society for Computational Economics.
  3. Pástor, Luboš & Veronesi, Pietro, 2003. "Stock Prices and IPO Waves," CEPR Discussion Papers 4002, C.E.P.R. Discussion Papers.
  4. Boyan Jovanovic & Peter L. Rousseau, 2001. "Why Wait? A Century of Life Before IPO," NBER Working Papers 8081, National Bureau of Economic Research, Inc.
  5. Tobias J. Moskowitz & Annette Vissing-Jorgensen, 2002. "The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?," NBER Working Papers 8876, National Bureau of Economic Research, Inc.
  6. Shleifer, Andrei & Vishny, Robert W., 2003. "Stock market driven acquisitions," Journal of Financial Economics, Elsevier, vol. 70(3), pages 295-311, December.
  7. Fumio Hayashi, 1981. "Tobin's Marginal q and Average a : A Neoclassical Interpretation," Discussion Papers 457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Jain, Bharat A & Kini, Omesh, 1994. " The Post-Issue Operating Performance of IPO Firms," Journal of Finance, American Finance Association, vol. 49(5), pages 1699-1726, December.
  9. Greenwood, Jeremy & Jovanovic, Boyan, 1990. "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1076-1107, October.
  10. P. Diamond, 1980. "Aggregate Demand Management in Search Equilibrium," Working papers 268, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. Choe, Hyuk & Masulis, Ronald W. & Nanda, Vikram, 1993. "Common stock offerings across the business cycle : Theory and evidence," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 3-31, June.
  12. Lee, Inmoo & et al, 1996. "The Costs of Raising Capital," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 19(1), pages 59-74, Spring.
  13. Tobias J. Moskowitz & Annette Vissing-Jørgensen, 2002. "The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?," American Economic Review, American Economic Association, vol. 92(4), pages 745-778, September.
  14. Raj Chetty, 2004. "Interest Rates and Backward-Bending Investment," NBER Working Papers 10354, National Bureau of Economic Research, Inc.
  15. Simon Kuznets & Elizabeth Jenks, 1961. "Capital in the American Economy: Its Formation and Financing," NBER Books, National Bureau of Economic Research, Inc, number kuzn61-1, octubre-d.
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Cited by:
  1. Raj Chetty, 2004. "Interest Rates and Backward-Bending Investment," NBER Working Papers 10354, National Bureau of Economic Research, Inc.
  2. Johann Burgstaller, 2005. "When and why do Austrian companies issue shares?," Economics working papers 2005-03, Department of Economics, Johannes Kepler University Linz, Austria.

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