Do Public Firms Respond to Investment Opportunities More than Private Firms? The Impact of Initial Firm Quality

Vojislav Maksimovic, Gordon Phillips and Liu Yang

No 24104, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using U.S. Census data, we track firms at birth and compare the growth pattern of IPO firms and their matched always-private counterparts over their life cycle. Firms that are larger at birth with faster initial growth are more likely to attain a larger size and to subsequently go public. We estimate a model to predict the propensity to become public (“public quality”) using initial conditions. Firms in the top percentile of public quality grow 29 times larger than the remaining firms fifteen years later if they actually become public and 14 times larger if they stay private, showing a large selection effect for IPO status. Public firms respond more to demand shocks after their IPO and are more productive than their matched private counterparts. This effect is stronger in industries that are capital intensive and dependent on external financing. Overall, initial conditions predict firm growth trajectories, selection into public status and responsiveness to demand shocks. We find no evidence of public market myopia when matching by initial conditions.

JEL-codes: G3 G32 L2 L20 L22 L25 L26 (search for similar items in EconPapers)
Date: 2017-12
New Economics Papers: this item is included in nep-cfn, nep-ent and nep-sbm
Note: CF IO PR
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Citations: View citations in EconPapers (2)

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