Abstract
Using a sample of 4441 IPOs from the US, we find that IPO firms with larger proportional offering size have lower valuation. The sizes of both primary share offering and secondary share offering are negatively related to IPO firm valuation. The valuation measures are positively related to the levels of capital expenditure and R&D before IPO, lending support to explanations based on Jensen (JAMA 76:323–329, 1986)’s free cash flow hypothesis. We also find evidence consistent with negative signals from larger secondary share offering size. Results of tests about long-run IPO stock performance do not support the hypothesis that IPO stock demand curve is downward sloping.
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