Cash to Spend: IPO Wealth and House Prices

Abstract

In this study, we empirically demonstrate the positive impact of initial public offerings (IPOs) on local house prices in California from 1993 to 2017. Using the spatial difference-in-differences approach, we test whether hedonic price indexes increase after IPO events more for the areas around IPO firms' headquarters. We use the IPO events of public filing, issuing, and lockup expiration to distinguish changes in shareholders' expected wealth, assessed wealth, and immediately available wealth, respectively. On filing and issuing dates, house prices increase more for markets that are closer to the headquarters of IPO firms. On lockup dates, house price changes are positively associated with listing-to-lockup returns. This result suggests that original shareholders change their housing demand when their wealth changes. We also use the San Francisco Bay as a natural barrier to commuting. Relative to the East Bay, house prices in San Francisco exhibit sustained increases in response to IPO filings and more temporary increases in response to the issuing and lockup expiration dates.

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

JEL Classification: L26, M12, J33, R21