The Long and the Short of It: Do Public and Private Firms Invest Differently?

62 Pages Posted: 25 Sep 2018 Last revised: 5 Nov 2019

See all articles by Naomi E. Feldman

Naomi E. Feldman

Hebrew University of Jerusalem, Department of Economics

Laura Kawano

University of Michigan at Ann Arbor

Elena Patel

University of Utah - Department of Finance

Nirupama Rao

University of Michigan, Stephen M. Ross School of Business

Michael Stevens

U.S. Department of the Treasury, Office of Tax Analysis (OTA)

Jesse Edgerton

JP Morgan

Date Written: October 31, 2019

Abstract

Using data from U.S. corporate tax returns, we investigate the differential investment propensities of public and private firms. Tax return data uniquely provide rich detail on corporate investment reported under identical standards and is representative of the universe of U.S. corporations. Using two empirical strategies we find robust evidence that public firms invest more in long-term assets – particularly innovation – than private firms. Focusing on firms that go public, we find that firms increase their R&D investment following their IPO. Our findings suggest that contrary to fears of ”short- termism”, public stock markets facilitate greater investment in risky, uncollateralized investments.

Keywords: Investment, public firms, corporate governance

JEL Classification: G31, G34

Suggested Citation

Feldman, Naomi E. and Kawano, Laura and Patel, Elena and Rao, Nirupama and Stevens, Michael and Edgerton, Jesse, The Long and the Short of It: Do Public and Private Firms Invest Differently? (October 31, 2019). Available at SSRN: https://ssrn.com/abstract=3239663 or http://dx.doi.org/10.2139/ssrn.3239663

Naomi E. Feldman

Hebrew University of Jerusalem, Department of Economics ( email )

Mount Scopus
Jerusalem, IL Jerusalem 91905
Israel
9190501 (Fax)

Laura Kawano

University of Michigan at Ann Arbor ( email )

Elena Patel

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States

Nirupama Rao (Contact Author)

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

Ann Arbor, MI
United States

Michael Stevens

U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave. NW
Washington, DC 20220
United States

Jesse Edgerton

JP Morgan ( email )

270 Park Avenue
New York, NY 10027
United States

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