Public Market Staging: The Timing of Capital Infusions in Newly Public Firms
Michael G. Hertzel
Arizona State University (ASU) - Finance Department
Mark R. Huson
University of Alberta - Department of Finance and Statistical Analysis
University of Texas at Austin - Department of Finance
March 15, 2010
AFA 2011 Denver Meetings Paper
We examine the financing activities of newly public firms for evidence on the staging of capital infusions. We consider an agency cost framework in which sequential financing increases issue costs, but controls the overinvestment problem that can arise when funds are provided prior to the maturity of an investment option. We find that the time from the IPO to the first post-IPO capital infusion decreases with the ratio of intangible to total assets, R&D intensity, and with investment intensity, measured relative to the amount of capital raised in the IPO. This evidence is similar to that documented by Gompers (1995) for venture capital staging and is consistent with the agency cost framework. Our study adds to the broad literatures that consider alternative explanations for the timing of capital raising activities, cash holdings, and the effectiveness of mechanisms used to control the overinvestment problem.
Number of Pages in PDF File: 40
Keywords: staged investment, IPO, cash
JEL Classification: G30, G35
Date posted: March 24, 2010
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