Access to Public Capital Markets and Employment Growth

65 Pages Posted: 9 Apr 2015

See all articles by Alexander Borisov

Alexander Borisov

University of Cincinnati - Department of Finance - Real Estate

Andrew Ellul

Indiana University - Kelley School of Business - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); University of Naples Federico II - CSEF - Center for Studies in Economics and Finance

Merih Sevilir

Indiana University - Kelley School of Business - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: April 2015

Abstract

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 long term 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 over long term horizons.

Keywords: Corporate growth, Employment growth, Financial constraints, Human capital, IPOs

JEL Classification: G32, G34

Suggested Citation

Borisov, Alexander and Ellul, Andrew and Sevilir, Merih, Access to Public Capital Markets and Employment Growth (April 2015). CEPR Discussion Paper No. DP10521. Available at SSRN: https://ssrn.com/abstract=2592343

Alexander Borisov (Contact Author)

University of Cincinnati - Department of Finance - Real Estate ( email )

College of Business Administration
Cincinnati, OH 45221
United States

Andrew Ellul

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

University of Naples Federico II - CSEF - Center for Studies in Economics and Finance ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

Merih Sevilir

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

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