Corporate Investment and Stock Market Listing: A Puzzle?

Abstract:     
We document sizeable and surprising differences in investment behavior between stock market listed and privately held firms in the U.S. using a rich new data source on private firms. Listed firms invest substantially less and are less responsive to changes in investment opportunities compared to matched private firms, even during the recent financial crisis. These differences do not reflect observable economic differences between public and private firms (such as lifecycle differences) and instead appear to be driven by a propensity for public firms to suffer greater agency costs. Evidence showing that investment behavior diverges most strongly in industries in which stock prices are particularly sensitive to current earnings suggests public firms may suffer from managerial myopia.

Number of Pages in PDF File: 53

Keywords: Corporate investment, Q theory, Private companies, Managerial incentives, Agency costs, Short-termism, Managerial myopia, IPOs

JEL Classification: D22, D92, G31, G32, G34

working papers series