What is the Effect of an Additional Dollar of IPO Proceeds?
62 Pages Posted: 30 Apr 2017 Last revised: 24 Oct 2020
Date Written: September 9, 2020
Abstract
We examine the effect of IPO proceeds on post-IPO liquidity and market monitoring. To do so we exploit variation in the amount of proceeds raised that is unrelated to firm size and manager decisions using an instrumental variable approach. We find that marginal increases in IPO proceeds lead to large increases in liquidity, analyst coverage, and institutional ownership in the first two years a firm is public. Increases in IPO proceeds also lead to more frequent follow-on offerings and longer survival as a public firm. We find evidence that immediate shocks to ownership dispersion represent one plausible channel through which changes in IPO proceeds affect long-run liquidity and market monitoring. Overall, our findings support the theoretical liquidity and market quality benefits associated with reductions in ownership concentration.
Keywords: Initial Public Offering, Monitoring, Institutional Ownership, Analyst Coverage
JEL Classification: G32, G24, G23
Suggested Citation: Suggested Citation