Going Entrepreneurial? IPOs and New Firm Creation
January 2017
Working Paper Number:
CES-17-18
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.
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:
economist,
endogeneity,
macroeconomic,
employee,
acquisition,
venture,
entrepreneurship,
entrepreneur,
startup,
investor,
endogenous,
startup firms,
founder,
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National Science Foundation,
Ordinary Least Squares,
Securities and Exchange Commission,
Federal Reserve Bank,
Employer Identification Number,
2SLS,
Longitudinal Business Database,
Federal Reserve System,
Initial Public Offering,
Chicago Census Research Data Center,
Securities Data Company,
University of Minnesota,
Longitudinal Employer Household Dynamics,
Alfred P Sloan Foundation,
Quarterly Workforce Indicators,
National Academy of Sciences,
International Trade Research Report,
Society of Labor Economists
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