Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
Upside of Inequality Oxford Unintended Consequences

AI Summary. A study of US private firms finds that a one-standard-deviation rise in a firm's financing shortfall is associated with a 45% higher likelihood of going public. After an initial public offering, disagreement among lenders about a firm's default risk falls, borrowing costs drop by 45 basis points, and debt rises more than 50% relative to comparable firms by year three.

Andres Almazan, Nathan Swem, Sheridan Titman and Gregory Weitzner National Bureau of Economic Research
Date Posted:

A study of 100k+ private nonfinancial firms (2012–23), including 433 IPOs, suggests listing improves access to debt as well as equity. After listing, lenders’ risk assessments converge and bank borrowing costs fall 45 basis points, controlling for assessed risk.

Do financing shortfalls drive private firms to go public?

Core argument: A one-standard-deviation increase in a US private firm’s financing deficit is associated with a 45% higher likelihood of going public, controlling for size, growth, leverage, investment, and industry–location–time effects.

A one-standard-deviation increase in a firm’s financing deficit is associated with a 45% higher likelihood of going public [controlling for size, growth, leverage, investment, and industry–location–time effects]. Consistent with a reduction in asymmetric information, we find that dispersion in PD [probability of default as perceived by disparate market participations] drops,beginning immediately after the IPO. [Note that] we calculate PD dispersion only for banks present prior to the IPO]. We find that after controlling for these risk assessments, firms’ borrowing costs drop by 45 bps after going public. [controlling for bank–firm and bank–quarter fixed effects]. Figure 7 shows that in the first year, there is a statistically significant drop in leverage of about 4 pp.. However, the point estimate returns to zero by year three. Figure 6 shows that IPO firms increase their debt by more than 50% relative to control firms by year three following the IPO. [An important caveat is that our post-IPO estimates capture both treatment and selection effects].

Takeaways by Macro Roundup® AI

  1. A one-standard-deviation increase in a US private firm’s financing deficit is associated with a 45% higher likelihood of going public, controlling for size, growth, leverage, investment, and industry–location–time effects.
  2. Dispersion in the probability of default perceived by banks present before the IPO drops immediately after it, and after controlling for these risk assessments, firms’ borrowing costs fall 45 basis points following the IPO, with bank–firm and bank–quarter fixed effects.
  3. IPO firms’ leverage falls a statistically significant 4 percentage points in the first year, with the point estimate returning to zero by year three, while their debt rises more than 50% relative to control firms by year three; these post-IPO estimates capture both treatment and selection effects.

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