Ipos And The Growth Of Firms
AbstractRecent years have witnessed a rapid accumulation of empirical evidence documenting firm dynamics around the IPO date. A particularly striking finding is that operating performance, as measured by Returns on Assets for example, peaks in the fiscal year preceding the offering, worsens on impact at the IPO date, and keeps on declining for a few more years. In this paper, I provide a novel rationalization of this evidence. To this end, I construct a simple dynamic stochastic model of firm behavior in which the decision to go public is modelled explicitly. The model predicts that the operating performance reaches its peak in the period before the offering and experiences a sudden decline at the IPO date. The comparative advantage of my approach is that it produces further implications that are in line with the data. Most importantly, the model predicts that the IPO coincides with an increase in sales and capital expenditures. Consistently with evidence pointed out by the Industrial Organization literature, the firm growth rate is shown to be decreasing in age and size.
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Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 2000 with number Z133.
Date of creation: 05 Jul 2000
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Other versions of this item:
- Gian Luca Clementi, 2004. "IPO's and the Growth of Firms," Working Papers 04-23, New York University, Leonard N. Stern School of Business, Department of Economics.
- Gian Luca Clementi, . "Ipos and The Growth of Firms," GSIA Working Papers 2002-E8, Carnegie Mellon University, Tepper School of Business.
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