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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26137
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| Title: | IPO's and the Growth of Firms |
| Authors: | Clementi, Gian Luca |
| Keywords: | Firm Dynamics
IPO
Operating Performance |
| Issue Date: | 3-Apr-2002 |
| Series/Report no.: | EC-04-23 |
| Abstract: | Recent years have witnessed a rapid accumulation of empirical evidence
documenting firm dynamics around the IPO date. A particularly striking
finding is that operating performance, as measured by Returns on Assets
for example, peaks in the fiscal year preceding the offering, worsens on
impact at the IPO date, and keeps on declining for a few more years. In
this paper, I provide a novel rationalization of this evidence. To this
end, I construct a simple dynamic stochastic model of firm behavior in
which the decision to go public is modelled explicitly. The model
predicts that the operating performance reaches its peak in the period
before the offering and experiences a sudden decline at the IPO date.
The comparative advantage of my approach is that it produces further
implications that are in line with the data. Most importantly, the model
predicts that the IPO coincides with an increase in sales and capital
expenditures. Consistently with evidence pointed out by the Industrial
Organization literature, the firm growth rate is shown to be decreasing
in age and size. |
| URI: | http://hdl.handle.net/2451/26137 |
| Appears in Collections: | Economics Working Papers
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