Capital Markets and Short-Termism: Evidence from the Investment Behavior of Public and Private Firms.

63 Pages Posted: 11 Jun 2021 Last revised: 29 Oct 2021

See all articles by Olga Bogachek

Olga Bogachek

Free University of Bolzano - Faculty of Economics and Management

Massimiliano Bonacchi

Free University of Bolzano - Faculty of Economics and Management; New York University (NYU) - Department of Accounting

Paul Zarowin

New York University (NYU) - Department of Accounting

Date Written: June 10, 2021

Abstract

We show that, contrary to popular belief, capital markets do not drive short-termism. By comparing public and private European firms in countries with different institutional infrastructures, we show that being listed in the stock market plays a positive role in a firm’s investment policies, which is inconsistent with the notion of short-termism. Additionally, the degree to which public markets encourage investment varies positively with countries’ institutional quality. We reconcile the differences between our findings and large sample U.S. results by showing that highly leveraged firms are over-represented in Sageworks’ U.S. private firm data.

Keywords: capital market short-termism, private firms, investment opportunity, legal institutional infrastructure, investor protection

JEL Classification: D22, G15, G31, G32, K22, M41

Suggested Citation

Bogachek, Olga and Bonacchi, Massimiliano and Zarowin, Paul, Capital Markets and Short-Termism: Evidence from the Investment Behavior of Public and Private Firms. (June 10, 2021). NYU Stern School of Business Forthcoming, Available at SSRN: https://ssrn.com/abstract=3864212 or http://dx.doi.org/10.2139/ssrn.3864212

Olga Bogachek

Free University of Bolzano - Faculty of Economics and Management ( email )

Italy

Massimiliano Bonacchi (Contact Author)

Free University of Bolzano - Faculty of Economics and Management ( email )

Universitätsplatz, 1
Bozen-Bolzano, BZ 39100
Italy
+39 0471 013290 (Phone)

HOME PAGE: http://www.unibz.it/en/economics/people/StaffDetails.html?personid=35968&hstf=35968

New York University (NYU) - Department of Accounting ( email )

40 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

HOME PAGE: http://www.stern.nyu.edu/faculty/bio/massimiliano-bonacchi

Paul Zarowin

New York University (NYU) - Department of Accounting ( email )

40 West 4th Street, Suite 400
422 Tisch Hall
New York, NY 10012-1118
United States
212-998-0015 (Phone)
212-995-4004 (Fax)

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