Post-IPO Employment and Revenue Growth for U.S. IPOs, June 1996-2010

There is significant concern among policymakers about the health of the Initial Public Offering (IPO) market. From 1980–2000, an average of 298 domestic operating companies went public in the United States each year, but from 2001–2011, the number of new listings fell to an average of only ninety per year. Despite the acknowledged importance of stock markets in raising capital for newly listed firms, there has been surprisingly little research examining the impact of these newly listed entrepreneurial firms on the U.S. economy in terms of revenues or employment. This report examines the employment and revenue growth performance of all domestic operating companies undertaking an IPO on American markets from June 1996, when the SEC’s EDGAR site started making IPO prospectuses available online, through 2010. During this period, according to our definitions, 2,766 domestic operating companies went public. These 2,766 companies employed 5.062 million people prior to going public and 7.334 million in 2010, an increase of 2.272 million employees, or 45 percent. This increase in post-IPO employment works out to 822 jobs added per firm. Note that, in contrast to the conventional wisdom, most of the jobs were created prior to the IPO. In dollars of 2011 purchasing power, in the aggregate these 2,766 companies had $1.32 trillion in annual sales in the year before going public, and $2.58 trillion in sales in fiscal 2010, a 96 percent increase. Inflation-adjusted revenue grew faster than employment due to high productivity growth. The average company going public raised $162 million in inflation-adjusted proceeds, not including an additional $27 million raised by selling shareholders. Since the average company going public created 822 jobs after the IPO, on average every job required an investment of approximately $200,000. In addition to reporting the employment and revenue growth for all companies going public, we categorize firms into emerging growth companies (“EGCs”), which we define as domestic operating companies less than thirty years old that are not spinoffs, rollups, buyouts, or demutualizations; and other companies (from here on, “others”). The aggregate employment for the subset of 1,700 EGCs increased from 651,000 employees prior to the IPO to 1.666 million employees in 2010, a 156 percent increase. For these EGCs, aggregate pre-IPO annual sales increased from an inflation-adjusted $134 billion to $481 billion in 2010, a 259 percent increase. Among the EGCs, growth was not uniform. There were standout performers, particularly in technology, such as Amazon, eBay, and Google, and in retail, such as Texas Roadhouse, that are responsible for outsized returns. The 1,066 other non-EGC IPOs, which are frequently larger companies, are responsible for employing more than 5.6 million people and generating $2.1 trillion in annual revenue in 2010, although most of their employees were hired prior to going public. We also examine the fate of all of the EGCs going public. Ten years after the IPO, only 29 percent of the EGCs from 1996–2000 remained as independent public companies. Of those that do not survive, being acquired is much more common than going bankrupt. The survival rates, however, differ markedly by industrial sector. In geographic terms, there is an extraordinary concentration of firms making IPOs in certain states. California is the home to 46 percent of all EGC IPOs, while Massachusetts has the highest per-capita number of EGC IPOs. While New York and Texas also have significant numbers of EGC IPOs, on a per-inhabitant basis they are not as impressive. Within states, there are regions — in particular, the San Francisco Bay Area and Greater Boston — that exhibit extremely high concentrations of EGC IPOs. While aggregate statistics reporting revenue or employment increases provide valuable insights, there are particular firms in our population, such as Amazon, eBay, and Google, that are examples of Schumpeterian innovation, whereby a firm or group of firms can lead reorganizations of entire economic sectors. Their influence cannot be reduced to their internal performance.