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Pre-IPO dividend and post-IPO stock price crash risk

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Listed:
  • Zhang, Jing
  • Li, Xiaoyue
  • Zhao, Yong
  • Feng, Jinyu

Abstract

It is a puzzle that a pre-IPO firm in need of funds pays out substantial dividends to initial shareholders. This paper finds that the amount of pre-IPO dividend payouts and post-IPO stock price crash risk present a U-shaped relationship, consistent with the notion that excessive cash payouts reflect expropriations by initial shareholders. Further tests show that the thresholds of the U-shaped relationship decrease for firms with pre-IPO underinvestment, IPO pricing caps and the abuse of IPO proceeds. This study provides further insights into the pre-IPO dividend puzzle, which highlights a new type Ⅱ agency problem between initial and new shareholders.

Suggested Citation

  • Zhang, Jing & Li, Xiaoyue & Zhao, Yong & Feng, Jinyu, 2025. "Pre-IPO dividend and post-IPO stock price crash risk," Finance Research Letters, Elsevier, vol. 86(PE).
    • Handle: RePEc:eee:finlet:v:86:y:2025:i:pe:s1544612325019737
    DOI: 10.1016/j.frl.2025.108719
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