Working Paper: NBER ID: w10298
Authors: Boyan Jovanovic; Peter L. Rousseau
Abstract: We study the relation between IPO investment and the rate of interest. We model the IPO timing decision and show that the implied relation between interest rates and investment is non-monotonic, and the data support the implication. At low rates of interest firms delay their IPOs. This happens because during the pre-IPO period the firm forgoes earnings that do not matter as much at low interest rates. The 1950's and early 1960's, especially, were periods of very low real interest rates, and IPO investment was low, with firms delaying their IPOs significantly. A qualitative difference seems to exist between investment of IPO-ing firms and the investment of incumbent firms which is decreasing in the interest rate, as neoclassical theory predicts.
Keywords: IPO; Interest Rates; Investment; Nonmonotonicity
JEL Codes: E4; G3; N1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| low interest rates (E43) | firms delay IPOs (D25) |
| low interest rates (E43) | low IPO investment (G24) |
| firms delay IPOs (D25) | gather information and reduce uncertainty (D80) |
| interest rates (E43) | investment behavior of IPOing firms (G24) |
| interest rates (E43) | investment behavior of incumbent firms (D22) |