Raising Capital after IPO Withdrawal
41 Pages Posted: 3 Nov 2016
Date Written: November 1, 2016
We document the outcomes of every withdrawn U.S. IPO (994) from 1998 to 2011. While prior literature has studied post-withdrawal IPO re-filings and M&A outcomes, one in three firms subsequently raises private capital. Presuming that capital needs motivate most IPOs, firms in need of cash should dual track a private placement alongside the IPO as an alternative. Firms generating negative cash are more likely to conduct private placements, however, firms raise less capital and do so at inferior valuations. Further, certain regulatory changes focused on easing a private capital raise post withdrawal are shown to have unintended consequences. While prior literature has evidenced this damage by way of negative industry reactions to IPO filings and positive reactions to withdrawals, we find opposite effects during and after the IPO Bubble. We also study market reaction to subsequent private placements and find that reactions across events offset one another. The offsetting reactions offer strong evidence that we are capturing the expected competitive effects of a funded rivals the likelihood of raising capital changes with each event.
Keywords: IPO, Withdrawal, Private Placement, Valuation, Raising Capital
JEL Classification: G14, G24, G32
Suggested Citation: Suggested Citation