Pre-IPO Dividend Puzzle

Abstract

We investigate dividend payments of companies prior to their IPOs. Our data sample consists of U.S companies conducting an IPO between 1980 through 2006. These dividend payments are significant both in number and size. We find support for the hypothesis that insiders seeking to exit use dividends as a means to avoid selling a large number of secondary shares in the IPO. Furthermore are managers actively managing their cash holdings prior the IPO. They try to avoid very high cash holdings. We reject the hypothesis that insiders try to strip the company off its hard assets in order to bring the overvalued part to the market.

Keywords: initial public offerings, dividend payments

JEL Classification: G32, G35