Corporate Investment and Stock Market Listing: A Puzzle?
New York University - Leonard N. School of Business - Department of Economics
Harvard Business School
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)
October 4, 2014
Review of Financial Studies 28, no. 2 (February 2015): 342-390
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.
Number of Pages in PDF File: 61
Keywords: Corporate investment; Q theory; Short-termism; Managerial myopia; Managerial incentives; Agency costs; Private companies; IPOs
JEL Classification: D22, D92, G31, G32, G34
Date posted: May 10, 2010 ; Last revised: February 7, 2015