Money talks? The impact of excess funding on post-IPO performance

How does the excessive money raised from initial public offerings (IPOs) affect the firms’ operating efficiency and long run performance? Using a sample of 1621 Chinese IPOs over the period of 1999–2014, we find that the excess funding aggravates investment inefficiency. Moreover, the negative impact of excess funding on investment inefficiency is more pronounced for non-state-owned enterprises (non-SOEs) but not state-owned enterprises (SOEs). For non-SOE IPOs, excess funding has a negative impact on long-term performance, and the negative impact is further punctuated by investment inefficiency. We conclude that the excessive money infusion is detrimental to post-IPO performance.