Capital Structure Changes Around IPOs

This paper examines capital-structure changes around IPOs. We find that the magnitude of leverage changes as well as market timing in hot-issue markets are sensitive to sample selection and whether preferred shares are treated as debt when computing pre-IPO leverage. Consistent with investor concern with overinvestment, firms that rely on preferred stock prior to their IPO are more likely to engage in staged equity financing after they go public. Overall, using a broader sample of IPO firms, we find little evidence of transitory declines in leverage during hot-issue markets.