Private versus Public Corporate Ownership: Implications for Future Long-Term Changes in Profitability

50 Pages Posted: 7 Jan 2014 Last revised: 25 May 2019

See all articles by Kristian D. Allee

Kristian D. Allee

University of Arkansas - Department of Accounting

Brad A. Badertscher

University of Notre Dame

Teri Lombardi Yohn

Indiana University - Kelley School of Business - Department of Accounting

Date Written: May 23, 2019

Abstract

We investigate the association between public versus private ownership and future long-term changes in profitability. Managers have long debated the implications of public and private corporate ownership; however, little empirical research has provided insight into the issue. We find robust evidence that public firms are associated with significantly lower future long-term changes in operating profitability compared to private firms matched on current profitability, size, growth and industry. We also find that the differential future long-term changes in profitability of public and private firms manifests in both future changes in profit margins and changes in asset turnovers. Additionally, we find evidence consistent with an association between short-termism, competition, and agency costs and the lower future long-term changes in profitability for public versus private firms. The results provide insight for managers and investors into the differential future changes in profitability of public versus private firms and into the factors that drive the differential profitability.

Keywords: private firms, profitability, future performance, short-termism, and ownership structure

JEL Classification: M41, M42, M44

Suggested Citation

Allee, Kristian D. and Badertscher, Brad A. and Yohn, Teri Lombardi, Private versus Public Corporate Ownership: Implications for Future Long-Term Changes in Profitability (May 23, 2019). Kelley School of Business Research Paper No. 2014-16. Available at SSRN: https://ssrn.com/abstract=2375916 or http://dx.doi.org/10.2139/ssrn.2375916

Kristian D. Allee

University of Arkansas - Department of Accounting ( email )

University of Arkansas
Business Building 458
Fayetteville, AR 72701
United States
479-575-5227 (Phone)

Brad A. Badertscher

University of Notre Dame ( email )

Mendoza College of Business
Notre Dame, IN 46556-5646
United States

Teri Lombardi Yohn (Contact Author)

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States
(812) 855-0430 (Phone)

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