Abstract
This paper examines whether debt retirement at the time of initial public offering (IPO) can stimulate firm growth. Our findings demonstrate that highly leveraged firms tend to use the proceeds of IPOs to repay more existing debt. Then, increased debt capacity and reduced interest burden enable firms to expand their businesses. Firms that retire more debt also present better performance in the long-term. These results indicate that firms that have previously been labeled low-growth firms can achieve high growth in the post-IPO period by conducting debt retirement.
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