Does Capital Market Myopia Affect Plant Productivity? Evidence from Going Private Transactions

53 Pages Posted: 6 Jan 2011

See all articles by Sreedhar T. Bharath

Sreedhar T. Bharath

Arizona State University (ASU) - Finance Department

Amy K. Dittmar

University of Michigan at Ann Arbor - The Stephen M. Ross School of Business

Jagadeesh Sivadasan

University of Michigan, Stephen M. Ross School of Business; University of Michigan at Ann Arbor - Survey Research Center

Date Written: December 1, 2010

Abstract

One influential criticism of the stock market oriented U.S. financial system is that its excessive focus on short term quarterly earnings forces public firms to behave in a myopic manner. We hypothesize that if capital markets pressure listed firms to be myopic in a way that impacts efficiency, then going private (when myopia is eliminated) should cause U.S. firms to improve their establishment level productivity relative to a peer control groups of firms. We find no evidence that this is the case. Our key finding is that while there is evidence for substantial within-establishment increases in productivity after going private, there is little evidence of difference-in-differences efficiency gains relative to peer groups of establishments constructed to control for industry, age, size at the time of going private, and the endogeneity of the going private decision effects. Also, we do not find evidence that myopic markets lead to under-investment at the establishment level. On the contrary, we find that after going private, firms shrink capital and employment, and close plants more quickly, relative to peer groups. Our findings cast doubt on the view that public markets cause listed firms to make sub-optimal, productivity-decreasing choices, or under-invest at the establishment level.

Keywords: Going private, delisting, productivity, efficiency, firm performance, investment

JEL Classification: G34, G14, G32, D24, D22

Suggested Citation

Bharath, Sreedhar T. and Dittmar, Amy and Sivadasan, Jagadeesh, Does Capital Market Myopia Affect Plant Productivity? Evidence from Going Private Transactions (December 1, 2010). Ross School of Business Paper No. 1153, Available at SSRN: https://ssrn.com/abstract=1735508 or http://dx.doi.org/10.2139/ssrn.1735508

Sreedhar T. Bharath (Contact Author)

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Amy Dittmar

University of Michigan at Ann Arbor - The Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-764-3108 (Phone)

HOME PAGE: http://webuser.bus.umich.edu/adittmar/

Jagadeesh Sivadasan

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

University of Michigan at Ann Arbor - Survey Research Center ( email )

Ann Arbor, MI
United States

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