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Interest Rates and Initial Public Offerings

Author

Listed:
  • Boyan Jovanovic
  • Peter L. Rousseau

Abstract

We study the relation between IPO investment and the rate of interest. We model the IPO timing decision and show that the implied relation between interest rates and investment is non-monotonic, and the data support the implication. At low rates of interest firms delay their IPOs. This happens because during the pre-IPO period the firm forgoes earnings that do not matter as much at low interest rates. The 1950's and early 1960's, especially, were periods of very low real interest rates, and IPO investment was low, with firms delaying their IPOs significantly. A qualitative difference seems to exist between investment of IPO-ing firms and the investment of incumbent firms which is decreasing in the interest rate, as neoclassical theory predicts.

Suggested Citation

  • Boyan Jovanovic & Peter L. Rousseau, 2004. "Interest Rates and Initial Public Offerings," NBER Working Papers 10298, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:10298
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    References listed on IDEAS

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    1. Pástor, Luboš & Veronesi, Pietro, 2003. "Stock Prices and IPO Waves," CEPR Discussion Papers 4002, C.E.P.R. Discussion Papers.
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    3. 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.
    4. Boyan Jovanovic & Peter L. Rousseau, 2001. "Why Wait? A Century of Life before IPO," American Economic Review, American Economic Association, vol. 91(2), pages 336-341, May.
    5. Choe, Hyuk & Masulis, Ronald W. & Nanda, Vikram, 1993. "Common stock offerings across the business cycle : Theory and evidence," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 3-31, June.
    6. 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.
    7. Shleifer, Andrei & Vishny, Robert W., 2003. "Stock market driven acquisitions," Journal of Financial Economics, Elsevier, vol. 70(3), pages 295-311, December.
    8. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-894, October.
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    10. Shleifer, Andrei, 1986. "Implementation Cycles," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1163-1190, December.
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    13. 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.
    14. Gian Luca Clementi, "undated". "Ipos and The Growth of Firms," GSIA Working Papers 2002-E8, Carnegie Mellon University, Tepper School of Business.
    15. Raj Chetty, 2004. "Interest Rates and Backward-Bending Investment," NBER Working Papers 10354, National Bureau of Economic Research, Inc.
    16. repec:hrv:faseco:30748164 is not listed on IDEAS
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    Cited by:

    1. Johann Burgstaller, 2009. "When and why do Austrian companies issue shares?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 36(3), pages 229-244, August.
    2. Raj Chetty, 2004. "Interest Rates and Backward-Bending Investment," NBER Working Papers 10354, National Bureau of Economic Research, Inc.
    3. Kropp, Jaclyn D. & Power, Gabriel J., 2016. "Asset fixity and backward-bending investment demand functions," Research in International Business and Finance, Elsevier, vol. 38(C), pages 151-160.

    More about this item

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G3 - Financial Economics - - Corporate Finance and Governance

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