Optimal IPO Timing: Based on Growth Changes of Cash Flow

Conference paper
Part of the Lecture Notes in Electrical Engineering book series (LNEE, volume 241)

Abstract

In this paper, we use model and analysis to study the IPO optimal timing based on a real option framework. We assume IPO will change the growth mode of cash flow and relax the original assumption in previous mode that the company’s growth rate of cash flow will maintain constant after IPO. Analysis showed that the greater the growth potential of the listing companies, the earlier they got listed; when listing costs is larger, the entrepreneurs will obviously delay IPO; The more optimistic of the company, the sooner the company go public; the more optimistic the corporate decision makers look upon the company, the later the IPO take place; the higher uncertainty of future earnings, the later company will be list. The concluding provided a good reference for the regulator of capital market who can makes effective safeguard for stability of the market and reasonable listing standards for listed companies, and for entrepreneurs to form the correct IPO concept as well as make reasonable IPO decision.

Keywords

Optimal IPO timing Real option Cash flow increase 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. 1.
    Zingales L (1995) Insider ownership and the decision to go public. Review of Economic Studies 62:425–448Google Scholar
  2. 2.
    Mello A, Parsons J (1998) Going public and the ownership structure of the firm. Journal of Financial Economics 49:79–109Google Scholar
  3. 3.
    Black G (1998) Venture capital and the structure of capital markets: Banks versus stock markets. Journal of Financial Economics 47:243–277Google Scholar
  4. 4.
    Lucas D, McDonald R (1990) Equity issues and stock price dynamics. Journal of Finance 45:1019–1043Google Scholar
  5. 5.
    Choe H, Ronald M, Vikram N (1993) Common stock offerings across the business cycle, theory and evidence. Journal of Empirical Finance 1:3–31Google Scholar
  6. 6.
    Baker M, Jeffrey W (2002) Market timing and capital structure. Journal of Finance 57:1–32Google Scholar
  7. 7.
    Baker M, Jeffrey W (2000) The equity share in new issues and aggregate stock returns. The Journal of Finance 55:2219–2257Google Scholar
  8. 8.
    Butler M, AlexanderW, Cornaggia J et al (2007) Equity issues and returns: managerial timing, reaction, or both? Working paper, University of Texas at DallasGoogle Scholar
  9. 9.
    Mauge E (2001) Ownership structure and the life cycle of the firm, a theory of the decision to go public. European Finance Review 5:167–200Google Scholar
  10. 10.
    Benninga S, Helmantel M, Sarigo (2005) The timing of initial public offerings. Journal of Financial Economics 75:115–132Google Scholar
  11. 11.
    P’astor L, Veronesi P (2005) Rational IPO waves. The Journal of Finance 60:1713–1757Google Scholar
  12. 12.
    Draho J (2001) The effect of public information on the timing and pricing of IPOs. Yale University 14–78Google Scholar
  13. 13.
    Myers C (1977) Determinants of corporate borrowing. Journal of Financial Economics 5:147–175Google Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2014

Authors and Affiliations

  1. 1.Business SchoolSichuan UniversityChengduPeople’s Republic of China

Personalised recommendations