Interest Rates and Initial Public Offerings

24 Pages Posted: 17 Feb 2004 Last revised: 21 Feb 2021

See all articles by Boyan Jovanovic

Boyan Jovanovic

New York University - Department of Economics

Peter L. Rousseau

Vanderbilt University - Department of Economics

Date Written: February 2004

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

Jovanovic, Boyan and Rousseau, Peter L., Interest Rates and Initial Public Offerings (February 2004). NBER Working Paper No. w10298, Available at SSRN: https://ssrn.com/abstract=502884

Boyan Jovanovic (Contact Author)

New York University - Department of Economics ( email )

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Peter L. Rousseau

Vanderbilt University - Department of Economics ( email )

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Nashville, TN 37235
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615-343-2466 (Phone)
615-343-8495 (Fax)

HOME PAGE: http://www.vanderbilt.edu/econ/faculty/rousseau.html

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