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Externalities of public firm presence: Evidence from private firms' investment decisions

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  • Badertscher, Brad
  • Shroff, Nemit
  • White, Hal D.
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    Abstract

    Public firms provide a large amount of information through their disclosures. In addition, information intermediaries publicly analyze, discuss, and disseminate these disclosures. Thus, greater public firm presence in an industry should reduce uncertainty in that industry. Following the theoretical prediction of investment under uncertainty, we hypothesize and find that private firms are more responsive to their investment opportunities when they operate in industries with greater public firm presence. Further, we find that the effect of public firm presence is greater in industries with better information quality and in industries characterized by a greater degree of investment irreversibility. Our results suggest that public firms generate positive externalities by reducing industry uncertainty and facilitating more efficient private firm investment.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 109 (2013)
    Issue (Month): 3 ()
    Pages: 682-706

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    Handle: RePEc:eee:jfinec:v:109:y:2013:i:3:p:682-706

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: Corporate investment; Uncertainty; Q theory; Private companies; Corporate disclosure; Financial accounting; Disclosure regulation;

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