Do IPOs Stimulate Corporate Investment? Evidence from Japan

The purpose of this paper is to examine the investment behavior of firms that have gone public through initial public offerings (IPOs). In doing so, the analysis incorporates the increasing diversity of recent IPO firms and employs a multifaceted set of investment indicators, including not only traditional tangible fixed asset investment but also intangible assets (intangible fixed assets, organizational capital, and R&D investment) and corporate acquisitions. The main findings are as follows. First, while investment behavior varies over time, IPO firms have shown an increasing trend in investment in intangible assets. Compared to existing listed firms, IPO firms exhibit higher levels of investment in both organizational capital and intangible fixed assets. Second, there is no evidence that IPO firms are underinvesting compared to existing listed firms (defined here as firms that have been listed for more than five years). Although the results differ depending on the matching method used, IPO firms were found to invest at levels comparable to—or in some areas exceeding—those of existing listed firms. The combined results from the matching analyses suggest that many IPO firms are characterized by investment patterns that rely heavily on intangible assets, which distinguishes them from conventional types. Third, the analysis examines heterogeneity within IPO firms. It was found that investment sensitivity within IPO firms is relatively high. This suggests that firms with more investment opportunities tend to invest accordingly.