IPO over-funding and cost stickiness

Abstract

The paper explores the influence of IPO over-funding on the cost stickiness. We first document that the liquidity from IPO over-funding has positive association with the cost stickiness in China which indicates that the liquidity supplement from IPO over-funding increases manager’s empire building incentives and reduces company’s operating efficiency. Besides, we find that this positive association is more significant in companies with weak governance in terms of less power balance, lower debt constraints and less institutional investor’s supervision. It is because company’s governance mechanism plays an important role on the efficiency of IPO proceeds. These conclusions provide enlightenment for the current regulation of listed companies.

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