(Job Market Paper)
Abstract: This paper analyzes the role of Initial Public Offerings (IPOs) on employment over the business cycle. Empirical evidence shows that IPOs are procyclical and that the business cycle matters for post-IPO firm growth over several years. One key factor driving this result is that contraction-period IPOs raise 37 percent less capital than expansion IPO cohorts. Building on this evidence, I develop a firm dynamics model in which private firms decide about going public, while public and private firms decide about exit, investment, and employment in the presence of borrowing constraints. The model is calibrated to match selected features of the U.S. non-financial firm sector and is able to replicate the procyclical number of IPOs, procyclical capital injections, and selection patterns observed in the data. Through the model, I find that IPO cyclicality amplifies the impact of negative aggregate productivity shocks on employment, delaying the recovery by 4-6 quarters. This amplification operates through two channels: first, a decline in the public firm share exacerbates capital misallocation; second, a lower propensity to go public reduces the number of new entrants, further delaying the recovery on the extensive margin. These findings suggest that policies mitigating IPO cyclicality during recessions could facilitate a faster recovery in aggregate employment.
(with Georg Dürnecker, Marek Ignaszak, and Leo Kaas)
Abstract: Using a large and representative panel survey of German firms, we document sizable forecast errors in employment growth which decline with firm age and which are related to investment and R&D activity. Motivated by this evidence, we build an endogenous growth model with heterogeneous firms which learn their productivity from noisy signals, decide about innovation activity, employment, and exit. Aggregate productivity growth responds to a selection channel via firm entry and exit and to an innovation channel via R&D investments of heterogeneous firms. We calibrate the model to replicate the realized and expected firm growth rates over the firms' lifecycle in our data. We use the calibrated model to quantify the role of information frictions in the selection and innovation channels behind aggregate productivity growth.