What is the Effect of an Additional Dollar of IPO Proceeds?

62 Pages Posted: 30 Apr 2017 Last revised: 24 Oct 2020

See all articles by Michael Dambra

Michael Dambra

SUNY at Buffalo - School of Management

Matthew Gustafson

Pennsylvania State University - Smeal College of Business

Kevin Pisciotta

University of Kansas - School of Business

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

Dambra, Michael and Gustafson, Matthew and Pisciotta, Kevin, What is the Effect of an Additional Dollar of IPO Proceeds? (September 9, 2020). Available at SSRN: https://ssrn.com/abstract=2958409 or http://dx.doi.org/10.2139/ssrn.2958409

Michael Dambra

SUNY at Buffalo - School of Management ( email )

354 Jacobs Management Center
Buffalo, NY 14260-1660
United States
716-645-3237 (Phone)

Matthew Gustafson (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

East Park Avenue
University Park, PA 16802
United States

Kevin Pisciotta

University of Kansas - School of Business ( email )

Capital Federal Hall
1654 Naismith Dr
Lawrence, KS 66045
United States

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