IPO's 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 04-23.
Date of creation: 2004
Date of revision:
Contact details of provider:
Postal: New York University, Leonard N. Stern School of Business, Department of Economics, 44 West 4th Street, New York, NY 10012-1126
Phone: (212) 998-0860
Fax: (212) 995-4218
Web page: http://w4.stern.nyu.edu/economics/
More information through EDIRC
Other versions of this item:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Asli M. Arikan & René M. Stulz, 2011. "Corporate Acquisitions, Diversification, and the Firm’s Lifecycle," NBER Working Papers 17463, National Bureau of Economic Research, Inc.
- Thomas J. Chemmanur & Shan He & Debarshi K. Nandy, 2010.
"The Going-Public Decision and the Product Market,"
Review of Financial Studies,
Society for Financial Studies, vol. 23(5), pages 1855-1908.
- Sangeeta Pratap & Silvio Rendon, 2003.
"Firm Investment in Imperfect Capital Markets: A Structural Estimation,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 513-545, July.
- Sangeeta Pratap & Silvio Rendón, 1996. "Firm investment in imperfect capital markets: A structural estimation," Economics Working Papers 274, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 1998.
- Loderer, Claudio & Waelchli, Urs, 2010. "Firm age and performance," MPRA Paper 26450, University Library of Munich, Germany.
- Boyan Jovanovic & Peter L. Rousseau, 2004. "Interest Rates and Initial Public Offerings," NBER Working Papers 10298, National Bureau of Economic Research, Inc.
- Mayur, Manas & Kumar, Manoj, 2006. "An Empirical Investigation of Going Public Decision of Indian Companies," MPRA Paper 1801, University Library of Munich, Germany.
- Astudillo, Alfonso & Braun, Matías & Castañeda, Pablo, 2011.
"The going public decision and the structure of equity markets,"
Journal of International Money and Finance,
Elsevier, vol. 30(7), pages 1451-1470.
- Astudillo, Alfonso & Braun, Matias & Castaneda, Pablo, 2011. "The Going Public Decision and the Structure of Equity Markets," MPRA Paper 38640, University Library of Munich, Germany.
- Arikan, Asli M. & Stulz, Rene M., 2011. "Corporate Acquisitions, Diversification, and the Firm's Lifecycle," Working Paper Series 2011-18, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Viveca Licata).
If references are entirely missing, you can add them using this form.