IDEAS home Printed from https://ideas.repec.org/a/kap/fmktpm/v38y2024i4d10.1007_s11408-024-00456-3.html
   My bibliography  Save this article

The cost of going public and financial constraints

Author

Listed:
  • Gerard Pinto

    (University of Delaware)

Abstract

We provide empirical evidence on the bargaining power model proposed in Hu and Ritter (2007) by examining the financial constraints channel on the direct and indirect cost of going public. We find that financially constrained firms possess lower bargaining power and thereby incur higher direct costs (gross spreads) and higher indirect costs (underpricing) in an IPO. Consistent with the bargaining power model, we find that IPOs of financially constrained firms are usually managed by sole bookrunners and underwritten by smaller syndicates. Finally, we find that these financially constrained IPO firms underperform their non-financially constrained IPO peers in the long term. These results are robust to multiple endogeneity tests.

Suggested Citation

  • Gerard Pinto, 2024. "The cost of going public and financial constraints," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 38(4), pages 443-464, December.
    • Handle: RePEc:kap:fmktpm:v:38:y:2024:i:4:d:10.1007_s11408-024-00456-3
    DOI: 10.1007/s11408-024-00456-3
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11408-024-00456-3
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11408-024-00456-3?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Initial public offering (IPO); New list; Securities; Financial constraints; Investment banking;
    All these keywords.

    JEL classification:

    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:fmktpm:v:38:y:2024:i:4:d:10.1007_s11408-024-00456-3. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.