The effect of lead institutional investors on investment and capital structure of young firms: Evidence from Indian IPOs

Aarti Sharma, Ankit Singhal and Vishwanatha Saragur Ramanna

International Review of Financial Analysis, 2024, vol. 91, issue C

Abstract: We study the consequences of an exogenous event, a regulation that allows IPO firms to seek investment from lead institutional investors in India. We document a significant increase in IPO volume as a result of the regulation. Post-regulation, lead-investor backed firms experience a reduction in issuance cost, an increase in capital investments and a decrease in leverage. The effects on investments and leverage are significant for high growth and financially constrained firms. Financially constrained firms backed by lead investors raise 26.4% more equity than unconstrained firms. Our findings provide evidence that discretionary allocation of shares to lead institutional investors could reduce capital constraints.

Keywords: Capital market; Financial market policy; IPO; Firm financing; Capital structure; Capital expenditure (search for similar items in EconPapers)
JEL-codes: G10 G18 G24 G32 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:91:y:2024:i:c:s1057521923005124

DOI: 10.1016/j.irfa.2023.102996

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