Capital Allocation by Private and Public Firms

90 Pages Posted: 24 Apr 2009 Last revised: 1 Dec 2011

Sandra Mortal

University of Memphis

Natalia Reisel

Fordham University

Date Written: November 2, 2011


We compare investment policies across public and private firms in different institutional settings. Using a large cross-country dataset, we find that public listed firms are better positioned to take advantage of growth opportunities than private firms. Specifically, public listed firms exhibit higher investment sensitivity to growth opportunities than private firms. This differential, however, only exists in countries with well-developed stock markets. Further, the relative advantage public firms have at allocating capital depends on the degree of agency costs and reliance on external equity.

Keywords: Capital allocation, Stock market development, Corporate investment, Economic growth, Listed vs. unlisted, Public vs. private

JEL Classification: G15, G31, D92

Suggested Citation

Mortal, Sandra and Reisel, Natalia, Capital Allocation by Private and Public Firms (November 2, 2011). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN:

Sandra Mortal (Contact Author)

University of Memphis ( email )

Memphis, TN 38152
United States
(901) 678-4327 (Phone)
(901) 678-0839 (Fax)

HOME PAGE: http://

Natalia Reisel

Fordham University ( email )

113 West 60th Street
New York, NY 10023
United States

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