Externalities of Public Firm Presence: Evidence from Private Firms’ Investment Decisions
University of Notre Dame
Massachusetts Institute of Technology (MIT) - Sloan School of Management
Hal D. White
University of Michigan - Ross School of Business
February 5, 2013
Journal of Financial Economics (JFE), Forthcoming
MIT Sloan Research Paper No. 4988-13
Public firms provide a large amount of information through their disclosures. In addition, information intermediaries publicly analyze, discuss and disseminate these disclosures. Thus, greater public firm presence in an industry should reduce uncertainty in that industry. Following the theoretical prediction of investment under uncertainty, we hypothesize and find that private firms are more responsive to their investment opportunities when they operate in industries with greater public firm presence. Further, we find that the effect of public firm presence is greater in industries with better information quality and in industries characterized by a greater degree of investment irreversibility. Our results suggest that public firms generate positive externalities by reducing industry uncertainty and facilitating more efficient private firm investment.
Number of Pages in PDF File: 59
Keywords: Corporate Investment, Private Companies, Uncertainty, Disclosure, Investment Efficiency
JEL Classification: D22, D80, D92, G31, G32, G38, M41Accepted Paper Series
Date posted: April 9, 2012 ; Last revised: June 15, 2013
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