Do Public Firms Respond to Industry Opportunities More Than Private Firms? The Impact of Initial Firm Quality
We track firms at birth and compare the growth pattern of IPO firms and their birth-matched counterparts. Firms that are larger at birth with faster initial growth are more likely to attain a larger size later in life and go public. Firms in the top percentile of predicted propensity to go public grow 29 times larger fifteen years later than matched firms if they actually become public, and 14 times larger if they stay private, showing a large selection effect. We show that public firms, and especially those public firms backed by venture capital, respond more to demand shocks post-IPO.
Vojislav Maksimovic is from the University of Maryland and can be reached at email@example.com. Gordon Phillips is from the Tuck School of Business at Dartmouth and NBER and can be reached at firstname.lastname@example.org. Liu Yang is from the University of Maryland and can be reached at email@example.com. We thank Ian Appel and seminar participants at the University of Alberta Frontier of Finance Conference, University of British Columbia, Dartmouth College, Hong Kong University, Nanyang Technological University, Purdue University, Singapore Management University, Huazhong University of Technology, SUNY Buffalo, University of Maryland and the University of Oregon for helpful comments. Any opinions and conclusions expressed herein are those of the author(s) and do not necessarily represent the views of the U.S. Census Bureau. All results have been reviewed to ensure that no confidential information is disclosed. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.