Buying Analyst and Investor Attention through IPO Proceeds

Abstract

We examine the effect of IPO proceeds on the post-IPO information environment. We exploit variation in the amount of capital raised across IPOs that is unrelated to firm size and manager decisions using an instrumental variable approach, and find that marginal increases in IPO proceeds lead to large increases in analyst coverage and institutional ownership in the first two years a firm is public. Increases in IPO proceeds also lead to more frequent follow-on offerings and longer survival as a public firm. We find evidence that immediate shocks to ownership diversification represent one plausible channel through which changes in IPO proceeds affect long-run visibility and investor demand. Overall, our findings highlight important rewards to selling additional shares at the IPO.