The Going-Public Decision and Post-IPO Performance: Evidence from Japan

Using a large dataset of Japanese firms spanning the period from 1995 to 2011, we analyze private firms' going-public decision as well as their post-initial public offering (IPO) behavior and performance. To this end, we adopt the propensity-score matching difference-in-differences (PSM-DID) approach. Our results can be summarized as follows. First, firms that are larger, have a higher return on assets (ROA), higher total factor productivity (TFP), a lower debt-to-assets ratio, and a lower cost-to-assets ratio are more likely to go public. Second, compared to similar firms that have remained private, firms that have gone public have significant increases in their capital investment, research and development (R&D), ROA, TFP, labor productivity, employment, and debt. The results for a post-IPO increase in TFP and labor productivity are driven mainly by young firms and firms falling into industries characterized by a high dependence on external finance. Overall, our results suggest that IPOs relax external finance constraints and thus help firms to increase their investment R&D, profitability, and productivity.