Going Entrepreneurial? Ipos and New Firm Creation

52 Pages Posted: 26 Mar 2017

See all articles by Tania Babina

Tania Babina

Columbia Business School - Finance and Economics

Paige Ouimet

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Rebecca Zarutskie

Federal Reserve Board

Multiple version iconThere are 3 versions of this paper

Date Written: 2017-02

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

Suggested Citation

Babina, Tania and Ouimet, Paige and Zarutskie, Rebecca, Going Entrepreneurial? Ipos and New Firm Creation (2017-02). FEDS Working Paper No. 2017-022. Available at SSRN: https://ssrn.com/abstract=2940133 or http://dx.doi.org/10.17016/FEDS.2017.022

Tania Babina (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Paige Ouimet

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

Rebecca Zarutskie

Federal Reserve Board ( email )

20th Street and C Streets NW
Mailstop 155-B
Washington, DC 20551
United States
202-452-5292 (Phone)

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