“Access to Public Capital Markets and Employment Growth”
by Merih Sevilir
Indiana University – Kelley School of Business
We use the context of initial public offerings (IPOs) as a laboratory to examine the link between access to public capital markets, and the consequent relaxation of the financial constraints of firms, and their long-term employment decisions. To address endogeneity issues, we use a novel data set of private firms and investigate employment growth in IPO firms relative to two control groups: First, a matched sample of private firms that never file for an IPO, and second, a group of private firms that file for an IPO but eventually withdraw their offering due to exogenous reasons. We show that employment growth increases after going public relative to each control group and the effect of access to public capital markets on human capital investment is not temporary but more persistent. The most likely channel for the observed employment dynamics is relaxation of financial constraints, allowing newly public firms to access both equity and debt markets for funding investment in human capital. Overall, these results highlight the importance of public capital markets for job creation over long-term horizons.