Abstract
This paper investigates the impact of IPO over-financing on stock price crash risk. Using a unique Chinese database, we find a significant positive relationship between IPO over-financing and crash risk. This finding holds after a series of robustness checks including the inclusion of some omitted variables, longer forecasting windows, and other measure of crash risk. Further analyses show that the impact of IPO over-financing on crash risk is more pronounced in low Tobin’s q firms. Moreover, we find that IPO over-financing affects crash risk through over-investment effect.
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