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Post-IPO Emplyment Revenue Growth_report_FINAL (1)

Post-IPO Emplyment Revenue Growth_report_FINAL (1)

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Published by John Cook

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Published by: John Cook on May 22, 2012
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or u.S. IPOs,Je 1996–2010
Post-IPo EmPloymEnt and REvEnuE GRowth foR u.s. IPos, JunE 1996–2010 a2 |
Post-IPO Employment and Revenue Growth for U.S. IPOs, June 1996–2010Report for the Kauffman FoundationMay 2012
Martin Kenney*
ProessorDepartment o Human and Community DevelopmentUniversity o Caliornia, DavisandSenior Project DirectorBerkeley Roundtable on the International Economymkenney@ucdavis.edu
Donald Patton
Research AssociateDepartment o Human and Community DevelopmentUniversity o Caliornia, Davisdpatton@ucdavis.edu
Jay R. Ritter
Cordell Proessor o FinanceUniversity o FloridaWarrington College o Business Administration jay.ritter@warrington.u.edu
*The order o the authors is alphabetical and or identifcation purposes only. All o the authors thank the KaumanFoundation or their support. Kenney and Patton thank NSF Science o Science Policy, NSF Geography and RegionalScience, and the Small Business Administration or unding the development o their IPO database, upon which someo the analysis below is based. All o the conclusions in this report are those o the authors and should not be attributedto any o the organizations listed above.
Post-IPo EmPloymEnt and REvEnuE GRowth foR u.s. IPos, JunE 1996–2010
© 2012 by the Ewing Marion Kauffman Foundation. All rights reserved.
Post-IPo EmPloymEnt and REvEnuE GRowth foR u.s. IPos, JunE 1996–2010| 1
Executive Summary
There is signicant concern among policymakers about thehealth o the Initial Public Oering (IPO) market. From 1980–2000,an average o 298 domestic operating companies went public inthe United States each year, but rom 2001–2011, the numbero new listings ell to an average o only ninety per year.
Despitethe acknowledged importance o stock markets in raising capitalor newly listed rms, there has been surprisingly little researchexamining the impact o these newly listed entrepreneurial rms onthe U.S. economy in terms o revenues or employment. This reportexamines the employment and revenue growth perormance o alldomestic operating companies undertaking an IPO on Americanmarkets rom June 1996, when the SEC’s EDGAR site startedmaking IPO prospectuses available online, through 2010.During this period, according to our denitions, 2,766domestic operating companies went public. These 2,766 companiesemployed 5.062 million people prior to going public and 7.334million in 2010, an increase o 2.272 million employees, or45 percent. This increase in post-IPO employment works out to822 jobs added per rm. Note that, in contrast to the conventionalwisdom, most o the jobs were created prior to the IPO. In dollars o2011 purchasing power, in the aggregate these 2,766 companieshad $1.32 trillion in annual sales in the year beore going public,and $2.58 trillion in sales in scal 2010, a 96 percent increase.Infation-adjusted revenue grew aster than employment due to highproductivity growth. The average company going public raised$162 million in infation-adjusted proceeds, not including anadditional $27 million raised by selling shareholders. Since theaverage company going public created 822 jobs ater the IPO,on average every job required an investment o approximately$200,000.In addition to reporting the employment and revenue growthor all companies going public, we categorize rms into emerginggrowth companies (“EGCs”), which we dene as domestic operatingcompanies less than thirty years old that are not spinos, rollups,buyouts, or demutualizations; and other companies (rom here on,“others”).
The aggregate employment or the subset o 1,700EGCs increased rom 651,000 employees prior to the IPO to 1.666million employees in 2010, a 156 percent increase. For these EGCs,aggregate pre-IPO annual sales increased rom an infation-adjusted$134 billion to $481 billion in 2010, a 259 percent increase. Amongthe EGCs, growth was not uniorm. There were standout perormers,particularly in technology, such as Amazon, eBay, and Google, andin retail, such as Texas Roadhouse, that are responsible or outsizedreturns. The 1,066 other non-EGC IPOs, which are requently largercompanies, are responsible or employing more than 5.6 millionpeople and generating $2.1 trillion in annual revenue in 2010,although most o their employees were hired prior to going public.We also examine the ate o all o the EGCs going public. Tenyears ater the IPO, only 29 percent o the EGCs rom 1996–2000remained as independent public companies. O those that do notsurvive, being acquired is much more common than going bankrupt.The survival rates, however, dier markedly by industrial sector.In geographic terms, there is an extraordinary concentrationo rms making IPOs in certain states. Caliornia is the home to46 percent o all EGC IPOs, while Massachusetts has the highestper-capita number o EGC IPOs. While New York and Texas also havesignicant numbers o EGC IPOs, on a per-inhabitant basis they arenot as impressive. Within states, there are regions—in particular, theSan Francisco Bay Area and Greater Boston—that exhibit extremelyhigh concentrations o EGC IPOs.While aggregate statistics reporting revenue or employmentincreases provide valuable insights, there are particular rms in ourpopulation, such as Amazon, eBay, and Google, that are examples oSchumpeterian innovation, whereby a rm or group o rms can leadreorganizations o entire economic sectors. Their infuence cannot bereduced to their internal perormance.
1. Throughout this report, we exclude all oreign companies going public in the United States, banks and S&Ls (most o which areconversions rom mutual companies), Real Estate Investment Trusts (REITs), closed-end unds, limited partnerships, IPOs with an oerprice below $5 per share, unit oers, small best eorts oers, and Special Purpose Acquisition Companies (SPACs).2. Our denition o emerging growth companies diers rom the denition used in the 2012 Jumpstart Our Business Startups (JOBS)Act. This bill denes EGCs to be any company with annual revenue o less than $1 billion. Ninety-three percent o June 1996–December2010 domestic operating company IPOs, excluding penny stocks and unit oers, had infation-adjusted sales o less than $1 billion. Incontrast to the 93 percent o IPOs that qualiy as EGCs using the Congressional bill’s denition, only 61 percent (1,700/2,766) o IPOs inthis report are classied as EGCs. Our denition o EGCs includes Google and Facebook, which the Congressional denition excludes,but excludes all buyout-backed IPOs.

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