IPOs and the Local Economy

Local Economic Spillover Effects of Stock Market Listings

“…In this respect, this paper relates to studies that investigate the role of financial markets on economic wealth and growth and contributes to the debate on whether the stock market is a sideshow. Some studies argue that the development of equity markets does not affect local economic development (Karolyi (2004)) or even has a large negative effect (Cornaggia et al (2018)). In contrast, our evidence suggests that when firms gain better access to financial markets, there are positive spillover effects on the local economy.…”

“…But at least in a geographic, rather than firm-level setting, the instrument fails several criteria for validity. A study by Cornaggia, Gustafson, Kotter, and Pisciotta (2018) uses this instrument in a geographic setting and concludes that IPOs have a startlingly large negative effect on employment and income growth in their county. We conclude, though, that these large negative instrumental variable estimates stem from econometric, rather than economic, reasons, primarily due to a weak instrument that violates the necessary exclusion restriction.…”

“…We conclude, though, that these large negative instrumental variable estimates stem from econometric, rather than economic, reasons, primarily due to a weak instrument that violates the necessary exclusion restriction. One source of the econometric problem is that the first-stage-adjusted R 2 is quite low (at a maximum, 3.2% according to Table 3 in Cornaggia et al (2018)). We independently confirm a low first-stage-adjusted R 2 .…”