Corporate Investment and Stock Market Listing: A Puzzle?
New York University - Leonard N. School of Business - Department of Economics
Harvard Business School
New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Research Institute of Industrial Economics (IFN)
January 27, 2014
ECGI - Finance Working Paper
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. Ex ante differences between public and private firms such as lifecycle differences at most explain a third of the difference in investment behavior. The remainder appears most consistent with a propensity for public firms to suffer greater agency costs. In particular, evidence showing that investment behavior diverges most strongly in industries in which stock prices are particularly sensitive to current earnings news suggests public firms may suffer from managerial myopia.
Number of Pages in PDF File: 60
Keywords: Corporate investment, Q theory, Private companies, Managerial incentives, Agency costs, Short-termism, Managerial myopia, IPOs
JEL Classification: D22, D92, G31, G32, G34working papers series
Date posted: May 10, 2010 ; Last revised: January 28, 2014
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