The Expected Returns and Valuations of Private and Public Firms

50 Pages Posted: 10 Mar 2013 Last revised: 19 Mar 2013

See all articles by Ilan Cooper

Ilan Cooper

BI Norwegian Business School

Richard Priestley

Norwegian Business School

Multiple version iconThere are 2 versions of this paper

Date Written: March 18, 2013

Abstract

Industry characteristics explain the cross section of investment returns among industries consisting primarily of private …rms as well as among industries composed mostly of public …rms. For both types of industries, common asset pricing models explain the cross-sectional variation of characteristic-based investment returns. Tobin’s q and its cross sectional variation are very similar across private and public …rms. An industry’s characteristics, not the fraction of private …rms in it, determines the industry’s cost of capital. Assuming that managers of private …rms are less affected by investor misvaluation our results are consistent with a rational interpretation of the role of characteristics.

Keywords: Real Investment, Systematic Risk, Mispricing, q-theory, Investment Returns, Cost of Capital, Private Firms, Public Firms

JEL Classification: G0, G12, G31

Suggested Citation

Cooper, Ilan and Priestley, Richard, The Expected Returns and Valuations of Private and Public Firms (March 18, 2013). Available at SSRN: https://ssrn.com/abstract=2230974 or http://dx.doi.org/10.2139/ssrn.2230974

Ilan Cooper (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Richard Priestley

Norwegian Business School ( email )

Nydalsveien
37
N-0442 Oslo, 0283
Norway
47 46410515 (Phone)

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