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Illiquid Equity, Labor Mobility, and Talent Allocation

Job Market Paper

Using stock market shocks to randomize the completion of a firm’s liquidity event, I provide evidence that illiquid equity constrains labor mobility and talent allocation. I find that illiquidity reduces the mobility of employees with vested equity, while employees with unvested equity remain unaffected. The lock-in effect of illiquidity for vested employees is distinct from the well-known retention effect of unvested equity. I show that, by reducing labor mobility, illiquidity interferes with the assortative re-matching of talent in the economy. Recent trends of innovative startups staying private for longer can impose an externality on the broader economy by trapping employees in sub-optimal employer matches.

Going Public and the Internal Organization of the Firm (conditionally accepted at the Journal of Finance)

with B. Lochner, S. Obernberger, and M. Sevilir

This paper examines how Initial Public Offerings (IPOs) affect firms’ internal organization. We find that IPO firms transform into more hierarchical and standardized organizations, characterized by additional layers, more managers, smaller control spans, and larger administrative functions. These changes occur mostly in preparation for the IPO, are specific to equity financing through an IPO, and cannot be explained by growth. IPO firms with higher human capital risk and stricter listing requirements display larger hierarchical changes. Our results highlight that firms need to reduce dependence on key individuals’ human capital and to manage increased operational complexity when transitioning to public markets.

Great Recession Babies: How Are Startups Shaped by Macro Conditions at Birth?

with A. Ljungqvist

We propose a novel double randomization strategy to estimate the long-term imprinting effects of being born in the Great Recession on innovative startups. After purging ubiquitous selection biases and sorting effects, we find that recession startups experience substantially better long-term outcomes in terms of survival and growth in employment and sales, despite being born when funding is scarce and demand is declining. In contrast to prior work, we find that the recession does not encourage entry into entrepreneurship as job prospects dim; instead, it discourages exit by critical R&D workers who help recession startups out-innovate and out-perform expansion startups.
[Wall Street Journal]

Daniel Bias