Are Public Firms Really Myopic? Evidence from Matching IPO Firms at Birth

Abstract

We track firms at birth and compare the growth and responsiveness to demand shocks of IPO firms and their birth-matched counterparts. Firms that are larger at birth with faster initial growth are more likely to go public. Firms in the top percentile of predicted propensity to go public grow 29 times larger fifteen years later than matched firms if they actually become public, and 14 times larger if they stay private. We show that public firms, especially those public firms backed by venture capital, grow faster, respond more to demand shocks and gain higher efficiency post-IPO. Our results show that the growth patterns of public firms are predictable before their IPOs and are inconsistent with public firms being short-term orientated.