(Job Market Paper)
Abstract: This paper studies how cyclical initial public offering (IPO) activity shapes aggregate fluctuations. Using data on U.S. nonfinancial firms, I document that IPO activity covaries with the business cycle along three margins. The number of IPOs and the amount of capital raised at listing are generally procyclical, whereas firms that go public during contractions subsequently grow faster. Building on this evidence, I develop a quantitative heterogeneous firm dynamics model in which financially constrained private firms choose whether and when to go public and how much equity to sell. An IPO provides an immediate capital injection and transitions the firm into a public entity with greater borrowing capacity. Because these benefits increase with firm-specific and aggregate productivity, the set of firms choosing to go public expands in booms. Calibrated to the U.S. nonfinancial firm sector, the model shows that endogenous IPO activity amplifies and prolongs the propagation of aggregate shocks on the economy. Amplification arises because public firms adjust their scale more sharply, while persistence arises because downturns suppress IPO activity, creating missing cohorts that reduce the public firm share and alter its composition for many years.
(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.