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Small Business Economics

, Volume 12, Issue 3, pp 191–202 | Cite as

The Relaxation of Financing Constraints by the Initial Public Offering of Small Manufacturing Firms

  • Juseong Kim
Article

Abstract

Capital market imperfections, such as information asymmetry, increase the cost of external funds compared to that of internal funds. This phenomenon creates financing constraints limiting the availability of external funds and making corporate investment excessively sensitive to cash flow. This study analyzes the effect of financing constraints on the investment by comparing the financial behavior of Korean firms before and after their stocks are newly listed on a stock exchange. The results show that the sensitivity of investment to cash flow will be higher during the period before initial public offering (IPO) than after IPO. In particular, the effect of financing constraints relaxation by IPO is more prominent in small than in large manufacturing firms.

Keywords

Cash Flow Capital Market Internal Fund Stock Exchange Information Asymmetry 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Kluwer Academic Publishers 1999

Authors and Affiliations

  • Juseong Kim
    • 1
  1. 1.Technology Policy Sect., ETRIYusong-Gu, TaejonS. Korea

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