Investment dynamics and financial constraints in IPO firms
Article first published online: 30 MAR 2009
© 2009 Strategic Management Society. Published by John Wiley & Sons, Ltd.
Strategic Entrepreneurship Journal
Volume 3, Issue 1, pages 29–45, March 2009
How to Cite
Chaddad, F. R. and Reuer, J. J. (2009), Investment dynamics and financial constraints in IPO firms. Strat.Entrepreneurship J., 3: 29–45. doi: 10.1002/sej.65
- Issue published online: 30 MAR 2009
- Article first published online: 30 MAR 2009
- information asymmetries;
- intangible assets;
- capital expenditures
We join research in entrepreneurship and corporate finance to investigate financial constraints on investments by IPO firms. The evidence indicates that IPO firms generally possess valuable growth opportunities, yet financial constraints also limit their ability to exploit them. Capital expenditures decline significantly post-IPO, and information asymmetries between IPO firms and external capital providers help explain why some IPO firms are more financially constrained than others. Intangible assets that are often seen at the root of IPO firms' competitive advantages can also exacerbate external financing costs, constraining IPO firms' abilities to make future strategic investments. We also find that financial constraints are persistent, as they do not diminish as younger IPO firms mature. Copyright © 2009 Strategic Management Society.