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New Perspectives on Raising and Measuring Capital

Paper Session

Friday, Jan. 3, 2020 10:15 AM - 12:15 PM (PDT)

Manchester Grand Hyatt, Seaport H
Hosted By: American Finance Association
  • Chair: Sabrina T. Howell, New York University

The Impact of Going Public on the Firm’s Human Capital

Ramin Baghai
,
Stockholm School of Economics
Rui Silva
,
London Business School

Abstract

We study the effect of initial public offerings (IPOs) on the human capital of firms. We document that going public has a significant impact on the employee composition of firms. Access to public equity markets increases the level of skill and professionalism of the workforce. Post-IPO, firms attract and retain more expensive and more skilled workers, and recruitment becomes less reliant on family connections. We obtain these results by employing stock market return variations during the book building period as an instrument for IPO completion.

Initial Public Offerings and the Local Economy

Jess Cornaggia
,
Pennsylvania State University
Matthew Gustafson
,
Pennsylvania State University
Jason Kotter
,
Brigham Young University
Kevin Pisciotta
,
University of Kansas

Abstract

We provide evidence that a firm’s transition from private to public ownership stunts local economic growth, but only for large IPOs located in relatively small local economies. After accounting for endogeneity in the ownership decision, areas hosting large companies that go public experience muted growth in employment, establishments, population, and wages, relative to areas where firms remain private. Establishment-level analyses and tests of IPO-filer acquisition activity reveal that transitioning to public ownership causes firms to geographically diversify their establishments and employee base. These findings are consistent with public ownership reducing a firm’s reliance on local agglomeration economies, to the detriment of the local community.

Measuring Intangible Capital with Market Prices

Michael Ewens
,
California Institute of Technology
Ryan Peters
,
Tulane University
Sean Wang
,
Southern Methodist University

Abstract

Existing standards prohibit disclosures of internally created intangible capital to firm balance sheets, resulting in a downward bias of reported assets. To address this issue, we use transaction prices to estimate this missing intangible capital. On average, our new estimates of intangible capital is 10% smaller than prior estimates, while varying more by industry. The estimates better explain market values, increase HML portfolio returns, act as a better proxy for human capital and brand rankings, and exhibit a strong association with patent values.

Corporate Cash Shortfalls and Financing Decisions

Rongbing Huang
,
Kennesaw State University
Jay Ritter
,
University of Florida

Abstract

Given their actual revenue and spending, most net equity issuers and an overwhelming majority of net debt issuers would face immediate cash depletion without external financing. Firms tend to issue debt to fund investment, and issue equity to fund persistent cash needs. On average, debt issuers immediately spend almost all of the proceeds, while equity issuers retain much of the proceeds in cash. Anticipated near-future cash needs and fixed costs of financing help explain the fraction of the proceeds being retained. Our findings support a funding-horizon theory in which cash needs and how the proceeds are used motivate financing decisions.
Discussant(s)
Tania Babina
,
Columbia University
Emanuele Colonnelli
,
University of Chicago
Dimitris Papanikolaou
,
Northwestern University
Rene Stulz
,
Ohio State University
JEL Classifications
  • G3 - Corporate Finance and Governance