Comparing the Investment Behavior of Public and Private Firms

51 Pages Posted: 21 Sep 2011 Last revised: 28 Oct 2014

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)

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Date Written: September 2011

Abstract

We evaluate differences in investment behavior between stock market listed and privately held firms in the U.S. using a rich new data source on private firms. Listed firms invest less and are less responsive to changes in investment opportunities compared to observably similar, matched private firms, especially in industries in which stock prices are particularly sensitive to current earnings. These differences do not appear to be due to unobserved differences between public and private firms, how we measure investment opportunities, lifecycle differences, or our matching criteria. We suggest that the patterns we document are most consistent with theoretical models emphasizing the role of managerial myopia.

Suggested Citation

Asker, John William and Farre-Mensa, Joan and Ljungqvist, Alexander, Comparing the Investment Behavior of Public and Private Firms (September 2011). NBER Working Paper No. w17394, Available at SSRN: https://ssrn.com/abstract=1931164

John William Asker (Contact Author)

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

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 the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Research Institute of Industrial Economics (IFN) ( email )

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

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