Do Public Firms Invest Differently than Private Firms? Taking Cues from the Natural Gas Industry
Boston College - Department of Finance
December 3, 2012
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 68% 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 private firms react significantly less to positive growth opportunity shocks than public firms. These findings are not driven by heterogeneity in firm size, product markets, pricing, projects, or costs. The higher cost of external capital faced by private firms is a plausible explanation for our results.
Number of Pages in PDF File: 59
Keywords: Corporate Investment, Exogenous Shock, Marginal Q, Private Companies
JEL Classification: D21, G31, G32working papers series
Date posted: March 31, 2012 ; Last revised: December 4, 2012
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