Monitoring Capital and the Decision to Go Public

Does physical proximity to monitoring capital affect the firm's IPO decision? Using a geographic framework, we measure the amount of monitoring capital of equity investors and banks in each U.S. region. When regional equity capital is abundant, collateral-poor resident firms are more likely to go public. When regional bank capital is abundant, these firms are less likely to go public. We use out-of-state pension flows and shocks to bank deposits to confirm that underlying regional factors do not drive our findings. Overall, our evidence is consistent with Holmström and Tirole's (1997) prediction that monitoring capital unlocks financing for collateral-constrained firms