Capital Markets and Short-Termism: Evidence from the Investment Behavior of Public and Private Firms.
65 Pages Posted: 11 Jun 2021 Last revised: 30 May 2023
Date Written: June 10, 2021
Abstract
We study the net effect of capital market forces on investment decisions. By comparing public and private European firms in countries with different institutional infrastructures, we show that short-termism does not dominate in the investment decisions of listed firms. Additionally, the degree to which public markets encourage investment varies positively with countries’ institutional quality. We reconcile the differences between EU and large sample U.S. results by showing that private firms that are more successful and raising external capital to fund investment are likely to be over-represented in Sageworks’ US 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: Suggested Citation