Coveting Your Neighbor’s Worker: IPOs, Talent Reallocation, and Innovation

We examine talent reallocation following a private firm’s transition to public equity markets. We explore this question using detailed employment and project-level data in the biopharmaceutical industry. We define a firm’s peers at a precise level using overlap in project development portfolios based on therapeutic disease categories. Our results show that firms that go public significantly ramp up poaching of skilled labor from their still-private peers. Recruitment efforts are centered on scientists and high-experience workers, indicating that going public helps firms to attract talented workers directly from their competitors. At the same time, recently public firms exhibit an out-migration of less talented labor to their still-private peers. This reallocation of talented agents to recently-public firms and away from competitors is reflected in project outcomes—firms that are successful in attracting talented agents exhibit stronger outcomes in terms of progress in project development phases, project initiations, and eventual project approvals. Our results illustrate the nature of labor reallocation following the transition to public equity markets at a granular level as well as provide a mechanism for the competitive advantages afforded to going-public firms.