Does Favorable Investor Sentiment Lead to Costly Decisions to Go Public?
City University of Hong Kong
Wayne H. Mikkelson
University of Oregon - Department of Finance
February 15, 2012
Journal of Corporate Finance, Forthcoming
We investigate the real effects of decisions to undertake an initial public offering of stock in periods of favorable investor sentiment. Specifically, we examine potential effects of favorable investor sentiment on investment expenditures and how effects on investment affect firm operating performance and value as well as the likelihood of survival. We find that firms going public during periods of favorable sentiment, on average, spend substantially more on investments, especially acquisitions, than firms going public in other periods. The effect of favorable investor sentiment on investment is more pronounced for younger firms. We do not find, however, that the higher investment spending in the wake of favorable sentiment leads to worse operating or stock performance. Stock returns around acquisitions announcements are also positive for firms going public in favorable sentiment periods. The preponderance of our findings indicate that decisions to go public in favorable investor sentiment periods do not lead to corporate investment decisions that harm firm performance and value.
Keywords: initial public offerings, market conditions, operating performance, delisting rates
JEL Classification: C14, G30
Date posted: March 25, 2008 ; Last revised: April 17, 2015