Debt maturity and initial public offerings

Yomna Abdulla (), Viet Dang and Arif Khurshed ()
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Yomna Abdulla: The University of Manchester
Arif Khurshed: The University of Manchester

Review of Quantitative Finance and Accounting, 2016, vol. 47, issue 4, No 10, 1129-1165

Abstract: Abstract We investigate the effect of initial public offerings (IPOs) on the evolution of debt maturity by tracking a sample of US firms that went public over the period 1998–2011. Our findings reveal a significant and permanent increase in debt maturity post-IPO. The short-term debt ratio drops by nearly a fifth in the first 2 years after the IPO. These findings are economically significant and robust to controlling for the endogeneity in the listing decision. However, the lengthening of the post-IPO debt maturity is only evident in small, high-growth, and highly levered firms. This finding lends greater support to asymmetric information models than theories based on the agency costs of debt. There is some support for the argument based on the agency costs of equity as the IPO effect on debt maturity is only significant for firms with a high dilution ratio. Finally, the IPO effect varies with macroeconomic conditions as the increase in debt maturity post-IPO was most pronounced during the recent financial crisis of 2007–2008.

Keywords: IPO; Capital structure; Debt maturity; Short-term debt; Asymmetric information; Agency costs (search for similar items in EconPapers)
JEL-codes: G24 G32 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11156-015-0533-1

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