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Cash shortfalls in IPO firms

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  • Liu, Lei
  • Jacoby, Gady
  • Song, Xiaoping
  • Zheng, Steven Xiaofan

Abstract

We find that most IPO firms will run out of cash soon if they did not receive proceeds from IPOs. The cash shortfalls are not caused by increases in capital expenditure, R&D, M&A, or debt repayment and persist during the 5 years after IPO. Negative net cash flows help explain the persistent cash shortfalls. These results are consistent with the funding horizon theory. IPO firms with more initial cash shortfalls also have lower cash flows in the next 5 years, suggesting that initial cash shortfalls can be used to predict the future operating performance of IPO firms.

Suggested Citation

  • Liu, Lei & Jacoby, Gady & Song, Xiaoping & Zheng, Steven Xiaofan, 2023. "Cash shortfalls in IPO firms," Finance Research Letters, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:finlet:v:52:y:2023:i:c:s1544612322006961
    DOI: 10.1016/j.frl.2022.103520
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    References listed on IDEAS

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    2. Chen, Huan & Liu, Xin & Phan, Quoc & Zheng, Steven Xiaofan, 2025. "Corporate cash shortfalls and external financing: US vs Japan," Finance Research Letters, Elsevier, vol. 71(C).

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    Keywords

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • 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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