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Interest rates and the timing of new production

  • Boyan Jovanovic
  • Peter Rousseau

This article studies the relation between IPO investment and the rate of interest. The 1950s and early 1960s, especially, were periods of very low real interest rates, and IPO investment was very low, with firms delaying their IPOs significantly. The authors find a qualitative difference between investment of IPO-ing firms and the investment of incumbent firms. The latter is decreasing in the interest rate, as neoclassical theory predicts. On the other hand, very low interest rates tend to discourage IPOs, and this may be why the 1950s and 1960s contained few IPOs.

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File URL: http://www.chicagofed.org/digital_assets/publications/economic_perspectives/2004/ep_4qtr2004_part1_Jovanovic_Rousseau.pdf
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Article provided by Federal Reserve Bank of Chicago in its journal Economic Perspectives.

Volume (Year): (2004)
Issue (Month): Q IV ()
Pages: 2-11

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Handle: RePEc:fip:fedhep:y:2004:i:qiv:p:2-11:n:v.28no.4
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  1. Andrei Shleifer & Robert W. Vishny, 2001. "Stock Market Driven Acquisitions," NBER Working Papers 8439, National Bureau of Economic Research, Inc.
  2. Boyan Jovanovic & Peter L. Rousseau, 2001. "Why Wait? A Century of Life Before IPO," NBER Working Papers 8081, National Bureau of Economic Research, Inc.
  3. P. Diamond, 1980. "Aggregate Demand Management in Search Equilibrium," Working papers 268, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Jain, Bharat A & Kini, Omesh, 1994. " The Post-Issue Operating Performance of IPO Firms," Journal of Finance, American Finance Association, vol. 49(5), pages 1699-1726, December.
  5. Simon Kuznets & Elizabeth Jenks, 1961. "Capital in the American Economy: Its Formation and Financing," NBER Books, National Bureau of Economic Research, Inc, number kuzn61-1, October.
  6. Laura L. Veldkamp, 2006. "Media Frenzies in Markets for Financial Information," American Economic Review, American Economic Association, vol. 96(3), pages 577-601, June.
  7. Tobias J. Moskowitz & Annette Vissing-Jørgensen, 2002. "The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?," American Economic Review, American Economic Association, vol. 92(4), pages 745-778, September.
  8. Tobias J. Moskowitz & Annette Vissing-Jorgensen, 2002. "The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?," NBER Working Papers 8876, National Bureau of Economic Research, Inc.
  9. Lee, Inmoo & et al, 1996. "The Costs of Raising Capital," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 19(1), pages 59-74, Spring.
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