New Research on IPOs and Job Creation Released

by Tom Carlson | Thursday, Jun 7, 2012 | 438 views

A recent report by The Ewing Marion Kauffman Foundation offers new data on the number and size of IPOs, along with their impact on job creation.

The relatively unknown Kauffman Foundation claims to be among the thirty largest foundations in the United States with an asset base of around $2 billion. Its stated vision is to foster “a society of economically independent individuals who are engaged citizens, contributing to the improvement of their communities.” They focus their grants and operations on advancing entrepreneurship and improving the education of children and youth.

The new report, entitled “Post-IPO Employment and Revenue Growth for U.S. IPOs, June 1996–2010” analyzed data on the number and size of IPOs, and the number of jobs the companies created after their IPOs. (Note: All numbers in the rest of this article were taken from the Kauffman report.)

Number and Mix of IPOs:

The number of IPOs in the years 2001 – 2011 has dropped 70% from previous levels. The decrease was even more dramatic for smaller companies. In the two decades ended in 2000, approximately 80% of IPOs were by companies raising less than $50 million. In the period 2001 to 2011, companies raising less than $50 million accounted for only 20% of IPOs. These figures have been the subject of many articles and opinion pieces – often blaming the Sarbanes-Oxley Act and other regulations for the drop in smaller company offerings.

The criticism of the Sarbanes-Oxley Act rings the truest. Originally intended for only the largest public companies, its reach was extended to most public companies in the end. The Act imposes the same standards to small companies as for giant ones. Related costs, which may be a mere nuisance for a large company, may be prohibitive for a small one. As to other regulations, the fact is that states considered to be business unfriendly (such as California and Massachusetts) are home for a disproportionate share (per-capita) of IPO firms, beating out states considered business friendly (such as Texas, Utah and Florida).

Jobs Created:

A finding that will surprise many is the small number, relative to conventional wisdom, of jobs created by companies who go public. For companies categorized as “emerging growth companies” (ones that could be considered to have the best job creation prospects) that went public, employment increased 156% on average. Employment growth of 156% is great and more than other public companies, but much less than figures such as the 900% often proclaimed by politicians and the venture capital industry.


Kauffman’s research shows that emerging growth companies able to raise money in IPOs can be powerful job creators, albeit much less than normally claimed in the press. It also demonstrates that for whatever reason the number emerging growth companies going public has declined dramatically both in number and as a percentage of all IPOs. Politicians will no doubt take note of this report (as seen here, for example).


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