Identification of spillovers Local Economic Spillover Effects of Stock Market Listings Forthcoming at JFQA Alexander W. Butler Larry Fauver Ioannis Spyridopoulos Rice University University of Tennessee American University https://commons.wikimedia.org/wiki/File:Facebook_logo_thumbs_up_like_transparent_SVG.svg House by Rose Alice Design from the Noun Project home loan by ProSymbols from the Noun Project employment by Nithinan Tatah from the Noun Project Shops by Made by Made from the Noun Project Credit Card by Rediffusion from the Noun Project We show that IPOs have non-trivial positive spillover effects on local labor markets, business environments, consumer spending, real estate, and migration. We mitigate endogeneity concerns about unobserved heterogeneity with restrictive geographic fixed effects coupled with a matching procedure. We show that it is the listing decision, which encompasses both a wealth and liquidity shock, that induces economic spillovers. Conditional on an IPO occurring, an additional $10 million in IPO proceeds is associated with an extra 41 jobs and 0.7 new establishments locally. Abstract Identification of spillovers Motivation: the Facebook IPO’s spillover The Facebook IPO was enormous: Raised over $16 billion Made liquid the wealth that employees had in previously illiquid stock. It created a thousand new millionaires and a dozen new billionaires. Not really new, though: those people already had the wealth, they just did not know exactly how much…and it was illiquid. After the IPO, many employees purchased homes, driving real estate prices up by more than 15% in the six months following the IPO. Our paper asks whether the economic spillovers from an IPO are isolated to this example and find that they are not. We use two-year post-event averages for the following outcomes: House price changes (Federal Housing Agency, Zillow) Mortgage origination (Home Mortgage Disclosure Act (HMDA)) Employment, Establishments (ZIP code Business Patterns from Census) Credit card expenditures, Migration (Experian) Gross income, Wages (IRS) Covariates: Within-county matched observations are at the ZIP-year level and the regressions use county-year fixed effects. Covariates: Ln(population), Ln(population density), Ln(establishments), Ln(employment), Ln(wage income) Identifying assumption: Firms’ selection of the particular ZIP code for their headquarters is as good as random within a given county with respect to subsequent long-term economic development of that ZIP relative to nearby ZIPs. Data and methodology Magnitudes of the spillovers IPOs have a positive spillover effect on the local economy where they are headquartered, and it is along many dimensions. Specifically on real estate (home prices, mortgage activity), the real economy (employment, establishments), and consumer spending. The effect is coming from investor wealth and liquidity. The effect is not a raising capital effect like seasoned equity offerings, but is coming from the change in listing status of the IPO firm. Conclusion Alex Butler: alex.butler@rice.edu Larry Fauver: lafauver@utk.edu Ioannis Spyridopoulos: ispyrido@american.edu Paper PDF: