The Reorganization of Knowledge when Firms Go Public" with Daniel Bias, Benjamin Lochner, and Stefan Obernberger
Abstract:
We examine how firms adapt the composition and organization of their labor force when they go public. Hiring and reorganization begins two years ahead of the IPO. Hiring is strongest in high-skill jobs requiring knowledge in finance, accounting, and internal governance. In order to economize on the costs of maintaining a larger labor force with a broader knowledge base, we find the IPO firm to reorganize into a more hierarchical structure with smaller departments. IPO firms hire many young, highly skilled, but inexperienced employees to fill the middle ranks in this organization. Two thirds of top management are replaced in the process of going public. The wage gap between top managers and middle managers widens, in line with a higher utilization rate of knowledge of top managers after the reorganization. Overall, our results suggest that going public is associated with a comprehensive transformation of the firm’s labor force which becomes geared towards exploiting available technologies rather than generating innovation.