Do Public Firms Respond to Industry Opportunities More than Private Firms? The Impact of Initial Firm Quality

Abstract

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.

Keywords: IPOs, Public Firms, Private Firms, Myopia

JEL Classification: G20, G23, G24, G32