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Do Excess Funds Make Financially Constrained Firms Better Off? Evidence from IPOs in China

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  • Chunfang Cao
  • Wenxuan Hou
  • Xiumei Liu
  • Hongbo Pan

Abstract

Firms in transition economies often suffer financial constraints. In initial public offerings (IPOs), however, many newly listed Chinese firms raise funds in excess of what is originally planned. This paper examines whether these excess IPO funds are wasted on value‐destroying spending or enable firms to take growth opportunities. After controlling for the endogeneity issue, we find that Chinese firms with excess IPO funds have better post‐IPO operating performance, especially those with limited financing channels. In revealing the mechanism, we find that excess IPO fundraising alleviates financial constraints and reduces the cost of debt.

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  • Chunfang Cao & Wenxuan Hou & Xiumei Liu & Hongbo Pan, 2023. "Do Excess Funds Make Financially Constrained Firms Better Off? Evidence from IPOs in China," Abacus, Accounting Foundation, University of Sydney, vol. 59(3), pages 818-846, September.
    • Handle: RePEc:bla:abacus:v:59:y:2023:i:3:p:818-846
    DOI: 10.1111/abac.12236
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    References listed on IDEAS

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