62 Pages Posted: 20 Nov 2012 Last revised: 2 Mar 2015
Date Written: February 2015
This paper investigates the importance of accessing public capital markets through an initial public offering (IPO), and the consequent relaxation of firms’ financial constraints, for firm-level employment decisions. We find that firms significantly increase post-IPO investment in human capital compared to the pre-IPO stage. To address endogeneity concerns, we use a novel dataset of private firms and compare employment growth of IPO firms with two different control groups: First, private firms that file for an IPO but eventually withdraw their offering due to exogenous market conditions, and second, a propensity score matched sample of private firms that never file for an IPO. Firms that complete the IPO process experience higher employment growth in the post-IPO period relative to each control group. Importantly, our results show that the most likely channel for the realization of higher employment growth is the relaxation of financial constraints, allowing the newly public firms to access both equity and debt markets for funding investment in human capital, and not only capital expansion. Overall, our results highlight the importance of public capital markets for job creation.
Keywords: IPOs, Employment growth, Financial constraints, Corporate growth
JEL Classification: G32, G34
Suggested Citation: Suggested Citation
Borisov, Alexander and Ellul, Andrew and Sevilir, Merih, Access to Public Capital Markets and Employment Growth (February 2015). Available at SSRN: https://ssrn.com/abstract=2178101 or http://dx.doi.org/10.2139/ssrn.2178101