Capital Allocation by Private and Public Firms
University of Memphis
November 2, 2011
Journal of Financial and Quantitative Analysis (JFQA), Forthcoming
We compare investment policies across public and private firms in different institutional settings. Using a large cross-country dataset, we find that public listed firms are better positioned to take advantage of growth opportunities than private firms. Specifically, public listed firms exhibit higher investment sensitivity to growth opportunities than private firms. This differential, however, only exists in countries with well-developed stock markets. Further, the relative advantage public firms have at allocating capital depends on the degree of agency costs and reliance on external equity.
Number of Pages in PDF File: 90
Keywords: Capital allocation, Stock market development, Corporate investment, Economic growth, Listed vs. unlisted, Public vs. private
JEL Classification: G15, G31, D92
Date posted: April 24, 2009 ; Last revised: December 1, 2011
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