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

Chunfang Cao, Wenxuan Hou, Xiumei Liu, Hongbo Pan

Research output: Contribution to journalArticlepeer-review

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.
Original languageEnglish
JournalAbacus
Publication statusAccepted/In press - 14 Feb 2021

Keywords

  • excessive funds
  • financial constraints
  • performance
  • China
  • IPOs

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