Corporate Investment and Stock Market Listing: A Puzzle?

Review of Financial Studies 28, no. 2 (February 2015): 342-390

61 Pages Posted: 10 May 2010 Last revised: 7 Feb 2015

John Asker

New York University - Leonard N. School of Business - Department of Economics

Joan Farre-Mensa

Harvard Business School

Alexander Ljungqvist

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Research Institute of Industrial Economics (IFN)

Multiple version iconThere are 2 versions of this paper

Date Written: October 4, 2014

Abstract

We investigate whether short-termism distorts the investment decisions of stock market listed firms. To do so, we compare the investment behavior of observably similar public and private firms using a new data source on private U.S. firms, assuming for identification that closely held private firms are subject to fewer short-termist pressures. Our results show that compared to private firms, public firms invest substantially less and are less responsive to changes in investment opportunities, especially in industries in which stock prices are most sensitive to earnings news. These findings are consistent with the notion that short-termist pressures distort their investment decisions.

Keywords: Corporate investment; Q theory; Short-termism; Managerial myopia; Managerial incentives; Agency costs; Private companies; IPOs

JEL Classification: D22, D92, G31, G32, G34

Suggested Citation

Asker, John and Farre-Mensa, Joan and Ljungqvist, Alexander, Corporate Investment and Stock Market Listing: A Puzzle? (October 4, 2014). Review of Financial Studies 28, no. 2 (February 2015): 342-390. Available at SSRN: https://ssrn.com/abstract=1603484 or http://dx.doi.org/10.2139/ssrn.1603484

John William Asker

New York University - Leonard N. School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States
212-998-0062 (Phone)

HOME PAGE: http://pages.stern.nyu.edu/~jasker/

Joan Farre-Mensa

Harvard Business School ( email )

Rock Center 218
Soldiers Field Road
Boston, MA 02163
United States
617-495-6963 (Phone)

HOME PAGE: http://people.hbs.edu/jfarremensa

Alexander Ljungqvist (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street, Suite 9-160
New York, NY 10012-1126
United States
212-998-0304 (Phone)
212-995-4220 (Fax)

HOME PAGE: http://pages.stern.nyu.edu/~aljungqv

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

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