Investment Differences Between Public and Private Firms: Evidence From U.S. Tax Returns

30 Pages Posted: 30 Sep 2020 Last revised: 5 Jan 2021

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: January 4, 2021

Abstract

Using tax data, we compare the investment behavior of public and private firms for a representative sample of all U.S. corporations. We find that while both types of firms invest similarly in physical capital, public firms out-invest private firms in R&D. Compared to observationally-similar private firms, public firms invest roughly 50% more in R&D relative to their asset bases. Further, public firms dedicate 7.4 percentage points more of their investments to R&D than private firms. This stronger public firm R&D investment is muted when shareholder earnings pressures are heightened, but not so much as to overcome the baseline investment advantage.

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, Investment Differences Between Public and Private Firms: Evidence From U.S. Tax Returns (January 4, 2021). Available at SSRN: https://ssrn.com/abstract=3674235 or http://dx.doi.org/10.2139/ssrn.3674235

Naomi E. Feldman

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 (Contact Author)

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)

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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