The Broader Impact of IPOs

Abstract

The decrease in companies going public has received widespread attention, and the associated costs are widely debated. We document one widespread benefit of IPOs: increased stock market participation, including among people not directly associated with the heretofore private firm. Stock market participation represents a key factor toward building wealth. We find that local IPOs increase households’ propensity to own stock and their percent equity holdings. The attention channel drives effects: local IPOs attract attention to the market, through increased information production and publicity. The wealth channel has little influence, consistent with local IPOs not generating wealth shocks for most households.

Keywords: IPO, household finance, stock market participation, attention, local agglomeration