‘The reorganization of knowledge when firms go public’
by Stefan Obernberger
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We examine the consequences of going public for the firm’s organization of labor. We document increases in jobs requiring expert knowledge in finance, accounting, and governance. In order to economize on the costs of maintaining a more specialized labor force, we find the IPO firm to reorganize into a more hierarchical structure with smaller, more specialized departments. IPO firms hire many young, highly skilled, but inexperienced employees to fill the middle ranks in this organization. Two thirds of top management are replaced in the process of going public. We observe that the wage gap between top managers and middle managers widens, consistent with a higher utilization rate of knowledge of top managers after the reorganization. Departures of top managers are correlated with the degree of restructuring, suggesting that they do not appreciate their new roles or the bureaucracy of the new organization. Overall, our results are consistent with the economics of knowledge-based organizations.
The paper is joint work with Daniel Bias, Ben Lochner, and Merih Sevilir.