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Does favorable investor sentiment lead to costly decisions to go public?

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  • Alimov, Azizjon
  • Mikkelson, Wayne

Abstract

We investigate the real effects of decisions to undertake an initial public offering of stock in periods of favorable investor sentiment. Specifically, we examine potential effects of favorable investor sentiment on investment expenditures and how effects on investment affect firm operating performance and value as well as the likelihood of survival. We find that firms going public during periods of favorable sentiment, on average, spend substantially more on investments, especially acquisitions, than firms going public in other periods. The effect of favorable investor sentiment on investment is more pronounced for younger firms. We do not find, however, that the higher investment spending in the wake of favorable sentiment leads to worse operating or stock performance. Stock returns around acquisitions announcements are also positive for firms going public in favorable sentiment periods. The preponderance of our findings indicate that decisions to go public in favorable investor sentiment periods do not lead to corporate investment decisions that harm firm performance and value.

Suggested Citation

  • Alimov, Azizjon & Mikkelson, Wayne, 2012. "Does favorable investor sentiment lead to costly decisions to go public?," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 519-540.
  • Handle: RePEc:eee:corfin:v:18:y:2012:i:3:p:519-540
    DOI: 10.1016/j.jcorpfin.2012.02.004
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    Cited by:

    1. repec:eee:corfin:v:45:y:2017:i:c:p:496-521 is not listed on IDEAS
    2. Theodosios Dimopoulos & Stefano Sacchetto, 2014. "Merger Activity in Industry Equilibrium," GSIA Working Papers 2012-E47, Carnegie Mellon University, Tepper School of Business.
    3. repec:eee:jfinec:v:126:y:2017:i:1:p:200-226 is not listed on IDEAS

    More about this item

    Keywords

    Initial public offerings; Investor sentiment; Operating performance; Capital investment; Acquisitions;

    JEL classification:

    • 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
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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