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

See all articles by John Asker

John Asker

UCLA

Joan Farre-Mensa

University of Illinois at Chicago - Department of Finance

Alexander Ljungqvist

Stockholm School of Economics; 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 William 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

UCLA ( email )

8283 Bunche Hall
Los Angeles, CA 90095-1477
United States

Joan Farre-Mensa

University of Illinois at Chicago - Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States

Alexander Ljungqvist (Contact Author)

Stockholm School of Economics ( email )

111 60 Stockholm
Sweden

Centre for Economic Policy Research (CEPR)

London
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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