Working Paper: NBER ID: w24104
Authors: Vojislav Maksimovic; Gordon M. Phillips; Liu Yang
Abstract: Using U.S. Census data, we track firms at birth and compare the growth pattern of IPO firms and their matched always-private counterparts over their life cycle. Firms that are larger at birth with faster initial growth are more likely to attain a larger size and to subsequently go public. We estimate a model to predict the propensity to become public (“public quality”) using initial conditions. Firms in the top percentile of public quality grow 29 times larger than the remaining firms fifteen years later if they actually become public and 14 times larger if they stay private, showing a large selection effect for IPO status. Public firms respond more to demand shocks after their IPO and are more productive than their matched private counterparts. This effect is stronger in industries that are capital intensive and dependent on external financing. Overall, initial conditions predict firm growth trajectories, selection into public status and responsiveness to demand shocks. We find no evidence of public market myopia when matching by initial conditions.
Keywords: Public Firms; Private Firms; Investment Opportunities; Firm Quality; IPO
JEL Codes: G3; G32; L2; L20; L22; L25; L26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| initial firm conditions (L10) | future outcomes (P17) |
| public status (Y70) | responsiveness to demand shocks (F41) |
| public firms (L32) | higher productivity than matched private firms (L39) |
| initial conditions (C62) | firm growth trajectories (L25) |
| initial conditions (C62) | selection into public status (J45) |
| initial conditions (C62) | responsiveness to demand shocks (F41) |
| public status (Y70) | growth opportunities responsiveness diminishes over time (D25) |