Does Being Private Constrain Geographic Expansion?

Abstract

Private firms are more geographically constrained than their public counterparts. After initial public offerings (IPOs), firms complete more geographically diverse acquisitions. Underwriter certification and access to underwriter networks positively predict this expansion. Neither the amount of capital raised in an IPO nor follow-on capital raised predicts geographic expansion. Post-IPO geographic expansion also manifests using measures of establishment distribution or SEC filings mentions, and intensive margin tests indicate that expansion is driven by more than simply post-IPO M&A increases. In sum, our findings suggest that information frictions constrain M&A-based expansion by private firms and impact how firms are spatially organized.

Keywords: Initial Public Offerings, M&A, Geographic Expansion, US Census

JEL Classification: G20, G30, G32, G34