Corporate managers, bankers, and policy makers alike have expressed concerns that the recent dearth of initial public offerings (IPOs) has caused a breakdown in the engine of innovation and growth. In the paper, Does Going Public Affect Innovation?, which was recently made publicly available on SSRN, I explore whether the transition to public equity markets indeed affects innovation, and if so, how. Theoretically, the effect of IPOs on innovation is ambiguous. On the one hand, going public provides improved access to capital that may allow firms to enhance their innovative activities; on the other hand, market pressures and potential departure of employees following the IPO may lead to opposite results.
To answer this question, I use standard patent-based metrics to capture changes in innovative activity in the years around the IPO and focus on three important dimensions of firms’ innovative activity: internally generated innovation, the productivity and mobility choices of individual inventors, and the acquisition of external innovation.