Initial Public Offerings and the Local Economy: Evidence of Crowding Out

45 Pages Posted: 14 Sep 2017 Last revised: 19 Dec 2023

See all articles by Jess Cornaggia

Jess Cornaggia

Pennsylvania State University - Department of Finance

Matthew Gustafson

Pennsylvania State University - Smeal College of Business

Jason D. Kotter

Brigham Young University - Department of Finance

Kevin Pisciotta

University of Kansas - School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: December 14, 2023

Abstract

We test the effect of going public on economic growth in the areas surrounding IPO firms. We focus on IPO-filing firms, thus ensuring that both treatment and control firms are at similar life cycle stages, and use post-filing stock market fluctuations as an instrument for IPO completion. We show that IPOs that are large relative to the size of their counties lead to a 1.1 percentage point relative reduction in annual county-level establishment growth, with similar effects for employment and population growth. There are no corresponding effects for relatively small IPOs. These negative effects appear to be driven by a crowding out of local sector peers, but the crowding out also disrupts local agglomerations and slows down growth among other businesses that rely on local demand. Overall, our results indicate that macroeconomic gains from IPOs trade off against disruptions in local agglomeration economies where public firms originate.

Keywords: IPO, Economic Growth, Crowding Out, Concentration

JEL Classification: G32, J21, O47, R11

Suggested Citation

Cornaggia, Jess and Gustafson, Matthew and Kotter, Jason D. and Pisciotta, Kevin, Initial Public Offerings and the Local Economy: Evidence of Crowding Out (December 14, 2023). Available at SSRN: https://ssrn.com/abstract=3036176 or http://dx.doi.org/10.2139/ssrn.3036176

Jess Cornaggia (Contact Author)

Pennsylvania State University - Department of Finance ( email )

University Park, PA 16802
United States

HOME PAGE: http://https://directory.smeal.psu.edu/jnc29

Matthew Gustafson

Pennsylvania State University - Smeal College of Business ( email )

East Park Avenue
University Park, PA 16802
United States

Jason D. Kotter

Brigham Young University - Department of Finance ( email )

United States

Kevin Pisciotta

University of Kansas - School of Business ( email )

Capital Federal Hall
1654 Naismith Dr
Lawrence, KS 66045
United States

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