Debt Retirement at IPO and Firm Growth

This paper examines whether debt retirement at the time of initial public offering (IPO) can stimulate firm growth. Our findings reveal that highly leveraged firms tend to use proceeds of IPOs to repay more existing debt. Then, increased debt capacity and reduced interest burden enable firms to expand their businesses. Firms retiring more debt also present better long-term operating performance. These results indicate that firms conducting debt retirement, which have been labeled as low-growth firms by previous IPO literature, actually can achieve high growth during the post-IPO period due to the alleviation of potential debt-overhang problems