Does Going Public Affect Innovation?



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    • Shai Bernstein is with Stanford University. I am deeply grateful to Fritz Foley, Josh Lerner, Andrei Shleifer, and Jeremy Stein for their invaluable comments. I also thank Philippe Aghion, Effi Benmelech, Laura Field, Paul Gompers, Robin Greenwood, Sam Hanson, Oliver Hart, Victoria Ivashina, Dirk Jenter, Bill Kerr, Jacob Leshno, Gustavo Manso, Ramana Nanda, Francisco Perez-Gonzalez, David Scharfstein, Antoinette Schoar, Amit Seru, Adi Sunderam, Rick Townsend, and Jeff Zwiebel for helpful comments. I am grateful to seminar participants at Chicago University, Columbia University, Dartmouth College, Entrepreneurial Finance and Innovation Conference, Harvard Business School, Hebrew University, London Business School, London School of Economics, NBER Productivity Lunch, Northwestern University, Searle Conference on Innovation and Entrepreneurship, Stanford University, Tel-Aviv University, University of British Columbia, and University of Pennsylvania for helpful comments and suggestions. Andrew Speen provided superb research assistance. I am grateful for funding from the Ewing Marion Kauffman Foundation.


This paper investigates the effects of going public on innovation by comparing the innovation activity of firms that go public with firms that withdraw their initial public offering (IPO) filing and remain private. NASDAQ fluctuations during the book-building phase are used as an instrument for IPO completion. Using patent-based metrics, I find that the quality of internal innovation declines following the IPO, and firms experience both an exodus of skilled inventors and a decline in the productivity of the remaining inventors. However, public firms attract new human capital and acquire external innovation. The analysis reveals that going public changes firms' strategies in pursuing innovation.