Intended use of IPO proceeds and firm performance: A quantile regression approach

• We study the role of capital and strategic IPO motives on firm performance in Indonesia.
• We find that the capital motive is a key driver of performance in Indonesia.
• Investments in fixed assets and growth-oriented projects lift firm performance.
• A non-linear relation exists between retention of initial ownership and performance.
• These findings are robust when we control for ownership structure.

This paper investigates the link between intended use of proceeds and the decline in post-issue operating performance of IPO firms. It distinguishes between capital and strategic motives and employs quantile regressions to examine the Indonesian equity market over the period of 2000–2010. The overall evidence shows that post-issue performance can be explained by firm motivation to IPO issue with the capital motive being the critical driver of good performance in Indonesia. Investment in fixed assets and in stock market shares lead to better performance while other usages lead to poor performance. The results are robust to accounting for ownership structure and to alternative classifications of IPO intent. These results have policy implications for the management of IPO proceeds.