Do excess funds make financially constrained firms better off? Evidence from IPOs in China

Chunfang Cao; Wenxuan Hou; Xiumei  Liu; Hongbo  Pan

doi:10.1111/abac.12236

Do excess funds make financially constrained firms better off? Evidence from IPOs in China

Chunfang Cao, Wenxuan Hou^*, Xiumei Liu, Hongbo Pan

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

Abstract / Description of output

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 the 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 cost of debt.

Original language	English
Number of pages	29
Journal	Abacus: A Journal of Accounting, Finance and Business Studies
Early online date	14 Oct 2021
DOIs	https://doi.org/10.1111/abac.12236
Publication status	E-pub ahead of print - 14 Oct 2021

Keywords / Materials (for Non-textual outputs)

excessive funds
financial constraints
performance
China
IPOs

Access to Document

10.1111/abac.12236

CaoEtalA2021DoExcessFunds
This is the peer reviewed version of the following article: Cao, C., Hou, W., Liu, X. and Pan, H. (2021), Do Excess Funds Make Financially Constrained Firms Better Off? Evidence from IPOs in China. Abacus. https://doi.org/10.1111/abac.12236, which has been published in final form at https://doi.org/10.1111/abac.12236. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
Accepted author manuscript, 568 KB

Cite this

@article{b0be21b31dd940babe723784318020ae,

title = "Do excess funds make financially constrained firms better off? Evidence from IPOs in China",

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 the 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 cost of debt. ",

keywords = "excessive funds, financial constraints, performance, China, IPOs",

author = "Chunfang Cao and Wenxuan Hou and Xiumei Liu and Hongbo Pan",

year = "2021",

month = oct,

day = "14",

doi = "10.1111/abac.12236",

language = "English",

journal = "Abacus: A Journal of Accounting, Finance and Business Studies",

issn = "0001-3072",

publisher = "Wiley",

}

TY - JOUR

T1 - Do excess funds make financially constrained firms better off? Evidence from IPOs in China

AU - Cao, Chunfang

AU - Hou, Wenxuan

AU - Liu, Xiumei

AU - Pan, Hongbo

PY - 2021/10/14

Y1 - 2021/10/14

N2 - 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 the 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 cost of debt.

AB - 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 the 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 cost of debt.

KW - excessive funds

KW - financial constraints

KW - performance

KW - China

KW - IPOs

U2 - 10.1111/abac.12236

DO - 10.1111/abac.12236

M3 - Article

SN - 0001-3072

JO - Abacus: A Journal of Accounting, Finance and Business Studies

JF - Abacus: A Journal of Accounting, Finance and Business Studies

ER -

Do excess funds make financially constrained firms better off? Evidence from IPOs in China

Abstract / Description of output

Keywords / Materials (for Non-textual outputs)

Access to Document

Fingerprint

Cite this