Going Entrepreneurial? IPOs and New Firm Creation

Tania Babina, Paige P. Ouimet and Rebecca Zarutskie

No 2017-022, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Using matched employee-employer US Census data, we examine the effect of a successful initial public offering (IPO) on employee departures to startups. Accounting for the endogeneity of a firm?s choice to go public, we find strong evidence that going public induces employees to leave for start-ups. Moreover, we document that the increase in turnover following an IPO is driven by employees departing to start-ups; we find no change in the rate of employee departures for established firms. We present evidence that, following an IPO, many employees who received stock grants experience a positive shock to their wealth which allows them to better tolerate the risks associated with joining a startup or to obtain funding. Our results suggest that the recent declines in IPO activity and new firm creation in the US may be causally linked. The recent decline in IPOs means fewer workers may move to startups, decreasing overall new firm creation in the economy.

Keywords: Entrepreneurship; Initial Public Offerings; New Firms; Wealth (search for similar items in EconPapers)
Pages: 51 pages
Date: 2017-02
New Economics Papers: this item is included in nep-ent, nep-ino and nep-sbm
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Citations: View citations in EconPapers (2)

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Working Paper: Going Entrepreneurial? IPOs and New Firm Creation (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2017-22

DOI: 10.17016/FEDS.2017.022

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