Access to Capital and the IPO Decision: An Analysis of US Private Firms (National Bureau of Economic Research)

Summary

• A one-standard-deviation increase in a firm's financing deficit is associated with a 45% higher likelihood of going public.p.4
• Three years post-IPO, IPO firms' capex and total assets increase by 55% and 40% respectively compared with matched control firms.p.4
• After controlling for banks' private assessments of probability of default (PD) and loss given default (LGD), firm borrowing costs drop by 45 bps after going public.p.4
• IPO firms increase total debt by more than 50% relative to control firms by three years post-IPO.p.16

Key insights

1. Private firms with higher external capital needs are significantly more likely to conduct an IPO in the future.p.4
2. Newly public firms do not rely solely on IPO equity infusions, but rebalance their capital structures by increasing debt issuance post-IPO.p.4
3. The within-firm dispersion in banks' private default risk assessments declines immediately after an IPO, reflecting reduced asymmetric information.p.4
4. Lower borrowing costs post-IPO reflect improved loan terms rather than purely credit risk reductions.p.4
5. Going public enables firms to expand borrowing sources, increasing their use of syndicated loans and public bonds.p.5
6. Technology and life science firms exhibit a higher sensitivity of the IPO decision to their financing deficits compared to the overall sample.p.13
7. VC-backed firms display stronger sensitivity to financing deficits when deciding to go public compared to the baseline firm sample.p.14