Informing Entrepreneurs? Initial Public Offerings and New Business Formation

Abstract

ABSTRACT We examine the spillover effects of local initial public offerings (IPOs) on new business formation. An IPO in a local area is associated with a 1%–4% increase in new business registrations, and this effect is particularly pronounced in counties facing higher economic uncertainty. New business registrations are significantly influenced by the extent of EDGAR downloads related to the IPO firm's public disclosures and the information in the IPO firm's S‐1 disclosure. The findings highlight the role of IPOs in conveying crucial information through signaling of potential success prospects and additional provision of information through disclosures. A field survey of 503 entrepreneurs further supports these conclusions.

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