Workshop Series: Michelle Lowry
Newly public firms hold far higher levels of cash than mature firms, and these substantially higher cash holdings remain relatively stable for extended periods after the IPO. This is puzzling since many measures of firm growth, which are generally hypothesized to be related to demand for cash, converge to those of mature firms over this period. Interestingly, newly public firms are unique in the extent to which they benefit from these high cash holdings: among newly public firms a high cash portfolio significantly outperforms a lower cash portfolio, but we do not find a similar relation among mature firms. We posit that newly public firms’ cash holdings and the associated benefits are driven by uncertainty regarding the availability of post-IPO financing. Those with pre-IPO syndicated loans (one-third of our sample) likely face the least uncertainty. Consistent with this conjecture, both the high level of cash holdings and the benefits of these cash holdings are restricted to the subsample of newly public firms without syndicated loans prior to the IPO.
Michelle Lowry is a professor of finance in the Smeal College of Business at Penn State, where she has worked since 2000. Michelle's research is in the area of empirical corporate finance, primarily focusing on the pricing and timing of initial public offerings (IPOs), the corporate governance of young companies, and the effects of securities litigation on corporate financing decisions. She has published articles in these fields in the Journal of Financial Economics, Review of Financial Studies, and Journal of Finance. In addition, Michelle serves as an associate editor at the Journal of Financial Economics, the Review of Financial Studies, and Financial Management.