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The location of initial public offering headquarters: An empirical examination

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Abstract

We study the headquarters location of U.S. firms with an initial public offering (IPO) over the 2001–2011 period. Specifically, we examine IPO intensity, defined as IPOs in a state scaled by state population. We find that IPO intensity is positively related to various measures of education. We also find that IPO intensity is positively related to an economic climate (freedom) index, degree of urbanization, and whether a state contains a financial center. Some economists see IPOs as a driver of economic growth. Thus, our results suggest factors that government officials may consider to increase the number of IPOs headquartered in their states.

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Notes

  1. Employment data are from Thomson Reuters as of August 2012.

  2. See Hart (2008), for a discussion of the growth of state-level entrepreneurial economic development strategies.

  3. See Ritter and Welch (2002), Ritter (2003), Ljungqvist (2007), Yong (2007), and Ritter (2011) for a review of this literature.

  4. Data are from Table 1 of Jay Ritter’s website http://bear.warrington.ufl.edu/ritter/IPOs2011Statistics70512.pdf.

  5. The population data are from the U.S. Census Bureau website.

  6. The academic perspective is echoed in a financial executive trade journal article by Cheney (2011). He states that companies look for havens from irrelevant regulation and complicated taxation, and a skilled workforce.

  7. Data are from the National Center for Education Statistics publication, The Digest of Education Statistics: 2010, Table 11.

  8. This freedom index measure has also been used by others, such as Campbell et al. (2012), Apergis et al. (2014), and Heller and Stephenson (2014).

  9. Data are from The Statistical Abstract of the United States, 2011, Table 29.

  10. See also Zook (2002), and Cumming and Dai (2010) for evidence that venture capital firms and the firms they fund tend to be located near each other.

  11. Wojcik (2009) has the same list of cities except for Philadelphia.

  12. Interestingly, Oklahoma and Connecticut are the two most under-predicted states for IPO intensity. A connection between these two states is not readily apparent.

  13. The most influential observations are Massachusetts, Illinois, and West Virginia in Model (1); Massachusetts, Connecticut, and Illinois in Model (2); and Massachusetts, Illinois, and Nevada in Model (3).

  14. Results are similar using a CPI deflator.

  15. The three largest IPOs in our sample were in fact not “ordinary” IPOs, but mature businesses. These were Visa in 2008 (raised $17.9 billion), General Motors in 2010 (raised $15.8 billion), and Kraft, a spinoff from Philip Morris in 2001 (raised $8.7 billion).

  16. States can change their relative economic freedom ranking. When we compared the 2010 index values with the 2000 values we used, five states improved their relative ranking by 15 or more places, while four states dropped in ranking by 15 or more places. The largest increase was for North Dakota, which moved from 47th to 15th. Meanwhile, the largest decrease was for Michigan, which dropped from 23rd to 46th.

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Acknowledgments

We wish to thank participants at the 2013 Eastern Finance Association conference, and seminar participants at Wake Forest University, for useful comments on an earlier version of this paper.

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Authors and Affiliations

  1. McDonough School of Business, Georgetown University, 37th and O Streets, NW, Washington, DC, 20057, USA

    Michael Cichello

  2. Department of Economics, University of Maryland Baltimore County, 1000 Hilltop Circle, Baltimore, MD, 21250, USA

    Douglas J. Lamdin

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  1. Michael Cichello
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  2. Douglas J. Lamdin
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Correspondence to Douglas J. Lamdin.

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Cichello, M., Lamdin, D.J. The location of initial public offering headquarters: An empirical examination. J Econ Finan 40, 1–18 (2016). https://doi.org/10.1007/s12197-014-9283-5

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