Going Public and the Internal Organization of the Firm
104 Pages Posted: 19 May 2022 Last revised: 16 Nov 2024
Date Written: July 22, 2022
Abstract
This paper examines how Initial Public Offerings (IPOs) affect firms’ internal organization. We find that IPO firms transform into more hierarchical and standardized organizations, characterized by additional layers, more managers, smaller control spans, and larger administrative functions. These changes occur mostly in preparation for the IPO, are specific to equity financing through an IPO, and cannot be explained by growth. IPO firms with higher human capital risk and stricter listing requirements display larger hierarchical changes. Our results highlight that firms need to reduce dependence on key individuals' human capital and to manage increased operational complexity when transitioning to public markets.
Keywords: IPOs, Going Public, External Financing, Organizational Economics, Human Resource Management
JEL Classification: G32, G34, M50, D20
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