Agglomeration Effects in Initial Public Offerings

Abstract

We show that the decision to go public is influenced by the spatial variation in the supply of equity financing. We measure the amount of capital of equity investors in each U.S. region and document that the incidence of initial public offerings (IPOs) by intangible-intensive resident firms increases significantly when regional equity capital is abundant. Using a novel empirical strategy and hand-collected data on out-of-state pension flows, we confirm that our findings are not due to underlying regional factors. Overall, our evidence is consistent with Holmstrom and Tirole's (1997) prediction that monitoring capital unlocks financing opportunities for intangible-intensive firms.

Keywords: IPOs, Agglomeration, Intangible Assets

JEL Classification: G20, G23, G14