Using matched employee-employer data from the US Census, we examine the impact of a successful initial public offering (IPO) on a firm's existing employees and their future career choices. Using an instrumental variables strategy, we find strong evidence that going public induces employees to depart for start-ups. Moreover, this result is specific to start-ups. We find no change in the rate of employee departures to established firms. We suggest and find evidence consistent with two non-mutually exclusive mechanisms which can explain this pattern. First, following an IPO, many employees who received large stock grants in the past are able to cash out. This shock to employee wealth may allow employees to better tolerate the risks associated with joining a start-up. Alternatively, employees may leave following an undesirable cultural change following the IPO. Our results suggest that the recent secular decline in IPO activity and new firm creation in the U.S. may be causally linked. The recent decline in IPOs means fewer workers move to startups, decreasing overall new firm creation in the economy.
Babina, Tetyana, Paige Ouimet, and Rebecca Zarutskie. "Going Entrepreneurial? IPOs and New Firm Creation." Columbia Business School, February 2017.
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