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Interest Rates and Initial Public Offerings

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  • 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.

Suggested Citation

  • Boyan Jovanovic & Peter L. Rousseau, 2004. "Interest Rates and Initial Public Offerings," NBER Working Papers 10298, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:10298
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    References listed on IDEAS

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    1. Boyan Jovanovic & Peter L. Rousseau, 2001. "Why Wait? A Century of Life before IPO," American Economic Review, American Economic Association, vol. 91(2), pages 336-341, May.
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    Cited by:

    1. Johann Burgstaller, 2009. "When and why do Austrian companies issue shares?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 36(3), pages 229-244, August.
    2. Óscar Gutiérrez, 2021. "Real options and the perverse effect of interest rates on investment timing," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 3984-3996, July.
    3. Adra, Samer, 2021. "The conventional and informational impacts of monetary policy on the IPO market," Economics Letters, Elsevier, vol. 200(C).
    4. Eliana Angelini & Matteo Foglia, 2018. "The Relationship Between IPO and Macroeconomics Factors: an Empirical Analysis from UK Market," Annals of Economics and Finance, Society for AEF, vol. 19(1), pages 319-336, May.
    5. Gutiérrez, Óscar, 2020. "On the definition of the investment-uncertainty relationship," Journal of Economics and Business, Elsevier, vol. 112(C).
    6. Raj Chetty, 2004. "Interest Rates and Backward-Bending Investment," NBER Working Papers 10354, National Bureau of Economic Research, Inc.
    7. Kropp, Jaclyn D. & Power, Gabriel J., 2016. "Asset fixity and backward-bending investment demand functions," Research in International Business and Finance, Elsevier, vol. 38(C), pages 151-160.

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    More about this item

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G3 - Financial Economics - - Corporate Finance and Governance

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