Bank Loans to Newly Public Firms

Prior studies have shown that newly public firms exhibit a high degree of uncertainty and asymmetric information, with few reliable sources of information. These findings suggest that investors could benefit if some independent party is able to assess the quality of a newly public firm. Since other studies have found that banks can reduce information asymmetry about firms that borrow, we examine whether banks provide information about the quality of newly public firms. We find that bank lending is consistently associated with positive long-term outcomes-newly public firms that borrow experience significantly smaller decreases in operating performance and better long-term stock performance than non-borrowers.