Cash to Spend: IPO Wealth and House Prices

Abstract

This study empirically demonstrates the positive impact of initial public offerings (IPOs) on local housing prices in California from 1993 through 2017. In the spirit of the difference-in-difference approach, we test whether hedonic price indexes increase after IPO events more for the areas around IPO firm headquarters. We use the IPO events of public filing, issuing, and lockup expiration to distinguish changes in the shareholders’ expected wealth, assessed wealth, and immediately available wealth, respectively. On the filing and issuing dates, house prices increase by more for markets that are closer to the headquarters around IPO firms. On the lockup date, houseprices only increase if the listing-to-lockup return is positive. This result suggests that original shareholders change their housing demand when their wealth changes but not when liquidity constraint is relaxed. We also use the San Francisco Bay as a natural barrier to commuting. Relative to the East Bay, house prices in San Francisco exhibit a long term increase in response to the IPO filing date but only a short term increase in response to the issue and lockup expiration dates.

Keywords: Initial Public Offerings, Housing Value, Hedonic Regression, Wealth Effects, Liquidity Constraints, Executive Compensation

JEL Classification: L26, M12, J33, R21