Debt maturity and initial public offerings

Debt maturity and initial public offerings We investigate the effect of initial public offerings (IPOs) on the evolution of debt maturity by tracking a sample of US firms that went public over the period 1998–2011. Our findings reveal a significant and permanent increase in debt maturity post-IPO. The short-term debt ratio drops by nearly a fifth in the first 2 years after the IPO. These findings are economically significant and robust to controlling for the endogeneity in the listing decision. However, the lengthening of the post-IPO debt maturity is only evident in small, high-growth, and highly levered firms. This finding lends greater support to asymmetric information models than theories based on the agency costs of debt. There is some support for the argument based on the agency costs of equity as the IPO effect on debt maturity is only significant for firms with a high dilution ratio. Finally, the IPO effect varies with macroeconomic conditions as the increase in debt maturity post-IPO was most pronounced during the recent financial crisis of 2007–2008. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Debt maturity and initial public offerings

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Publisher
Springer US
Copyright
Copyright © 2015 by Springer Science+Business Media New York
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-015-0533-1
Publisher site
See Article on Publisher Site

Abstract

We investigate the effect of initial public offerings (IPOs) on the evolution of debt maturity by tracking a sample of US firms that went public over the period 1998–2011. Our findings reveal a significant and permanent increase in debt maturity post-IPO. The short-term debt ratio drops by nearly a fifth in the first 2 years after the IPO. These findings are economically significant and robust to controlling for the endogeneity in the listing decision. However, the lengthening of the post-IPO debt maturity is only evident in small, high-growth, and highly levered firms. This finding lends greater support to asymmetric information models than theories based on the agency costs of debt. There is some support for the argument based on the agency costs of equity as the IPO effect on debt maturity is only significant for firms with a high dilution ratio. Finally, the IPO effect varies with macroeconomic conditions as the increase in debt maturity post-IPO was most pronounced during the recent financial crisis of 2007–2008.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Aug 1, 2015

References

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