Keywords

IPO effects, local economic growth, agglomeration disruption

Abstract

We test the effect of going public on economic growth in the areas surrounding IPO firms. We focus on IPO-filing firms, thus ensuring that both treatment and control firms are at similar life cycle stages, and use post-filing stock market fluctuations as an instrument for IPO completion. We show that IPOs that are large relative to the size of their counties lead to a 1.1 percentage point relative reduction in annual county-level establishment growth, with similar effects for employment and population growth. There are no corresponding effects for relatively small IPOs. These negative effects appear to be driven by a crowding out of local sector peers, but the crowding out also disrupts local agglomerations and slows down growth among other businesses that rely on local demand. Overall, our results indicate that macroeconomic gains from IPOs trade off against disruptions in local agglomeration economies where public firms originate.

Original Publication Citation

Initial Public Offerings and the Local Economy (with Jess Cornaggia, Matthew Gustafson, and Kevin Pisciotta), Review of Finance.

Document Type

Peer-Reviewed Article

Publication Date

2023

Publisher

Review of Finance

Language

English

College

Marriott School of Business

Department

Finance

University Standing at Time of Publication

Assistant Professor

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