Working Paper: NBER ID: w11197
Authors: Woojin Kim; Michael S. Weisbach
Abstract: This paper considers the question of whether raising capital is an important reason why firms go public. Using a sample of 16,958 initial public offerings from 38 countries between 1990 and 2003, we consider differences between firms that sell new, primary shares to the public, and existing secondary shares that previously belonged to insiders. Our results suggest that the sale of primary shares is correlated with a number of factors associated with the firm's demand for capital. In particular, issuance of primary shares is correlated with higher increases of investment, higher repayment of debt and increases in cash, and more subsequent capital-raising through seasoned equity offers. Since 79% of all capital raised through IPOs in our sample is from the sale of primary shares, we conclude that capital-raising is an important motive in the going-public decision.
Keywords: Initial Public Offerings; Capital Raising; Equity Markets
JEL Codes: G3; F3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| primary offerings (G24) | capital raising motives (G24) |
| primary offerings (G24) | increase in total assets (G32) |
| primary offerings (G24) | increase in inventory (G31) |
| primary offerings (G24) | increase in net property, plant, and equipment (PPE) (G31) |
| primary offerings (G24) | increase in capital expenditures (G31) |
| primary offerings (G24) | increase in R&D expenditures (O39) |
| primary offerings (G24) | increase in cash holdings (G32) |
| primary offerings (G24) | subsequent capital raising through seasoned equity offerings (SEOs) (G24) |
| secondary offerings (G24) | lower increases in financial metrics (G32) |