The Effects of Capital Infusions after IPO on Diversification and Cash Holdings

Abstract

This paper examines how the number and the timing of capital infusions after the IPO affect the firm’s diversification decision and the firm’s level of cash-holdings. We find that the frequent capital infusions ultimately affect the firm’s liquidity management policy, resulting in holding less cash consistent with the behavior life-cycle hypothesis. At the same time, the hurried external financings after the IPO influence managers to be more conservative in management, resulting in a high propensity for the firm’s diversification and a relatively high level of firm’s cash holdings.