The Relaxation of Financing Constraints by the Initial Public Offering of Small Manufacturing Firms

The Relaxation of Financing Constraints by the Initial Public Offering of Small Manufacturing Firms Capital market imperfections, such as information asymmetry, increase the cost of external funds compared to that of internal funds. This phenomenon creates financing constraints limiting the availability of external funds and making corporate investment excessively sensitive to cash flow. This study analyzes the effect of financing constraints on the investment by comparing the financial behavior of Korean firms before and after their stocks are newly listed on a stock exchange. The results show that the sensitivity of investment to cash flow will be higher during the period before initial public offering (IPO) than after IPO. In particular, the effect of financing constraints relaxation by IPO is more prominent in small than in large manufacturing firms. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Small Business Economics Springer Journals

The Relaxation of Financing Constraints by the Initial Public Offering of Small Manufacturing Firms

Loading next page...
 
/lp/springer_journal/the-relaxation-of-financing-constraints-by-the-initial-public-offering-obz5OdL8wQ
Publisher
Kluwer Academic Publishers
Copyright
Copyright © 1999 by Kluwer Academic Publishers
Subject
Business and Management; Management; Microeconomics; Entrepreneurship; Industrial Organization
ISSN
0921-898X
eISSN
1573-0913
D.O.I.
10.1023/A:1008090609649
Publisher site
See Article on Publisher Site

Abstract

Capital market imperfections, such as information asymmetry, increase the cost of external funds compared to that of internal funds. This phenomenon creates financing constraints limiting the availability of external funds and making corporate investment excessively sensitive to cash flow. This study analyzes the effect of financing constraints on the investment by comparing the financial behavior of Korean firms before and after their stocks are newly listed on a stock exchange. The results show that the sensitivity of investment to cash flow will be higher during the period before initial public offering (IPO) than after IPO. In particular, the effect of financing constraints relaxation by IPO is more prominent in small than in large manufacturing firms.

Journal

Small Business EconomicsSpringer Journals

Published: Sep 30, 2004

References

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 12 million articles from more than
10,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Unlimited reading

Read as many articles as you need. Full articles with original layout, charts and figures. Read online, from anywhere.

Stay up to date

Keep up with your field with Personalized Recommendations and Follow Journals to get automatic updates.

Organize your research

It’s easy to organize your research with our built-in tools.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve Freelancer

DeepDyve Pro

Price
FREE
$49/month

$360/year
Save searches from Google Scholar, PubMed
Create lists to organize your research
Export lists, citations
Read DeepDyve articles
Abstract access only
Unlimited access to over
18 million full-text articles
Print
20 pages/month
PDF Discount
20% off