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http://ssrn.com/abstract=2031614
 
 

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Do Public Firms Invest Differently than Private Firms? Taking Cues from the Natural Gas Industry


Erik Gilje


University of Pennsylvania - The Wharton School

Jérôme Taillard


Boston College - Department of Finance

October 4, 2013


Abstract:     
We study the investment behavior of private and public firms using a unique dataset of onshore U.S. natural gas producers. In firm-level regressions we find that investments by private firms are 60% less responsive to changes in natural gas prices, a measure that captures changes in marginal q. Exploiting county-specific shale gas discoveries as a natural experiment, we show that public firms increase investment in response to new growth opportunities with large capital requirements while private firms do not. We observe that private firms sell these capital intensive growth opportunities to public firms. These findings are not driven by heterogeneity in firm size, product markets, pricing or costs. Our evidence is consistent with the higher cost of external capital of private firms being of first order importance for their investment policies.

Number of Pages in PDF File: 63

Keywords: Corporate Investment, Exogenous Shock, Marginal Q, Private Companies

JEL Classification: D21, G31, G32

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Date posted: March 31, 2012 ; Last revised: October 5, 2013

Suggested Citation

Gilje, Erik and Taillard, Jérôme, Do Public Firms Invest Differently than Private Firms? Taking Cues from the Natural Gas Industry (October 4, 2013). Available at SSRN: http://ssrn.com/abstract=2031614 or http://dx.doi.org/10.2139/ssrn.2031614

Contact Information

Erik Gilje (Contact Author)
University of Pennsylvania - The Wharton School ( email )
3641 Locust Walk
Philadelphia, PA 19104-6365
United States
Jérôme Taillard
Boston College - Department of Finance ( email )
Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
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