US companies that went public subsequently borrowed from more lenders and received lower bank-loan rates, according to October research that examines a financing benefit beyond the money raised by selling shares.
The analysis connects stock-market listings with a broader change in access to capital. Companies increased investment and debt after their initial public offerings, or IPOs, rather than using the share sale to become permanently less reliant on borrowing.
For business owners weighing a listing, the research directs attention to what happens after the offering. A larger pool of lenders and better information about the company may affect financing for years. Those benefits still have to be weighed against disclosure, compliance costs and changes in control.
Andres Almazan, Nathan Swem, Sheridan Titman and Gregory Weitzner set out the findings in an October National Bureau of Economic Research working paper. The paper has not been peer-reviewed.
Investment and debt rise together
An IPO is a company’s first public offering of shares. Newly issued shares raise equity capital, giving investors an ownership stake. Loans and bonds raise debt capital, which carries repayment obligations.
The researchers assembled US private-company financial records from 2012 to 2023 and identified 433 IPOs between 2013 and 2023. Their source was Federal Reserve supervisory loan data, which lets them observe companies before they become public as well as comparable businesses that remain private.
Three years after listing, capital expenditure was approximately 55% higher and total assets about 40% higher than at matched private companies. Capital expenditure covers investment in assets such as buildings and equipment.
The newly public firms’ leverage initially fell, then returned to levels that were not statistically different from those of the comparison firms after three years. Leverage measures reliance on debt relative to a company’s financial base.
A business can raise substantial equity and subsequently borrow more while maintaining a similar leverage ratio if its assets grow too. The size of a company’s debt bill alone cannot establish whether its capital structure has become more stretched.
More information can bring more lenders
The researchers estimate that bank borrowing costs fell by 45 basis points after listing, after accounting for lenders’ own assessments of default risk and likely losses. That is 0.45 percentage points, not a 45% reduction in the interest rate.
They also found an expansion in lending relationships and greater use of syndicated loans and public bonds. A syndicated loan is provided by a group of lenders under a shared arrangement.
Banks became less divided in their private assessments of the same borrower’s default risk after the IPO. The authors interpret this convergence as evidence that listing reduces information gaps between companies and potential financiers.
A familiar lender may know substantially more about a private borrower than a competing bank does. If public reporting makes the borrower easier to assess, another lender can have a firmer basis for deciding whether to compete for its business.
The US Securities and Exchange Commission explains that reporting companies must file annual, quarterly and current reports on an ongoing basis. The regulator also lists offering costs, disclosure requirements, increased scrutiny and possible loss of founder control among the costs of becoming public.
A financing pattern, not a guaranteed payoff
The comparisons cannot fully separate the effect of listing from the characteristics of companies that choose to list. A company anticipating large investments may pursue an IPO because it already expects to grow.
The authors explicitly say their estimates contain both selection and treatment effects. Matching similar companies improves the comparison, but it does not turn the listing decision into a randomized experiment.
The sample also leans toward relatively large firms that borrow from major banks. Companies without qualifying bank loans are missing, limiting how readily the results can be applied to smaller businesses.
Our earlier coverage of Europe’s scale-up financing gap examines a related problem: getting an early investment is different from financing expansion. The US study concerns a particular route through that later financing stage, not a recommendation that every growing company should list.
Its central commercial finding is that the proceeds of an IPO tell only part of the financing story. The company’s borrowing relationships, loan terms and reporting obligations continue after the shares begin trading.
