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

50 Pages Posted: 5 Oct 2018

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: 2018-09-28

Abstract

Using data from U.S. corporate tax returns, which provide a sample representative of the universe of U.S. corporations, we investigate the differential investment propensities of public and private firms. Re-weighting the data to generate observationally comparable sets of public and private firms, we find robust evidence that public firms invest more overall, particularly in R&D. Exploiting within-firm variation in public status, we find that firms dedicate more of their investment to R&D following IPO, and reduce these investments upon going private. Our findings suggest that public stock markets facilitate greater investment, on average, particularly in risky, uncollateralized investments.

Keywords: Corporate governance, Investment, Public firms

JEL Classification: G34, G31

Suggested Citation

Feldman, Naomi E. and Kawano, Laura and Patel, Elena and Rao, Nirupama and Stevens, Michael and Edgerton, Jesse, The Long and Short of It: Do Public and Private Firms Invest Differently? (2018-09-28). FEDS Working Paper No. 2018-068, Available at SSRN: https://ssrn.com/abstract=3260395 or http://dx.doi.org/10.17016/FEDS.2018.068

Naomi E. Feldman (Contact Author)

Hebrew University of Jerusalem, Department of Economics ( email )

Mount Scopus
Jerusalem, 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

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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