Informing Entrepreneurs: Public Corporate Disclosure and New Business Formation

Abstract

We examine the relationship between public firm disclosure and aggregate new business formation. Consistent with the notion that public company disclosures provide information spillovers that reduce the extent of uncertainty about new investment opportunities, we find that increased public firm presence is positively associated with new business formation in an industry. Furthermore, using plausibly exogenous information shocks generated by new IPOs in a geographic area, we find that post-IPO, new business registration in the public company's geographic area rise by 4 to 10%, consistent with soft information channels serving to reinforce hard information in public disclosures. New IPOs are associated with significant increases in Edgar downloading activity in the IPOs’ geographic area, consistent with the notion that public firm disclosures are providing important investment opportunity information that facilitates new business formation.

Keywords: Entrepreneurship, New Business Formation, Uncertainty, Financial Disclosures, Real Effects, Externalities, IPOs

JEL Classification: D80, D81, D83, L26, M41