Do Public Firms Invest Differently than Private Firms? Taking Cues from the Natural Gas Industry
University of Pennsylvania - The Wharton School
Boston College - Department of Finance
October 4, 2013
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
Date posted: March 31, 2012 ; Last revised: August 19, 2014
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