Abstract
We posit that IPOs of local companies will lead to increased stock market participation. First, local IPOs attract attention to the market, through both increased information production and publicity. Second, local IPOs generate wealth, not just for people associated with the heretofore private company but also for the wider community through local agglomeration effects. Consistent with predictions, we find that local IPOs increase both households’ propensity to own stock and equity holdings as a percent of wealth. Tests of the mechanisms underlying this relation support the attention channel. We find little evidence in support of the wealth channel. Given prior evidence that stock market participation represents a key factor toward building wealth, our findings highlight that the benefits of IPOs extend beyond those people directly involved with the offering.
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