NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Interest Rates and Initial Public Offerings

Boyan Jovanovic, Peter L. Rousseau

NBER Working Paper No. 10298
Issued in February 2004
NBER Program(s):   CF   EFG   ME

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.

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