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

Author

Listed:
  • Jesse Edgerton
  • Naomi E. Feldman
  • Laura Kawano
  • Elena Patel
  • Nirupama Rao
  • Michael Stevens

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.

Suggested Citation

  • Jesse Edgerton & Naomi E. Feldman & Laura Kawano & Elena Patel & Nirupama Rao & Michael Stevens, 2018. "The Long and Short of It : Do Public and Private Firms Invest Differently?," Finance and Economics Discussion Series 2018-068, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2018-68
    DOI: 10.17016/FEDS.2018.068
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    File URL: https://www.federalreserve.gov/econres/feds/files/2018068pap.pdf
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    References listed on IDEAS

    as
    1. Jesse Edgerton, 2012. "Agency Problems in Public Firms: Evidence from Corporate Jets in Leveraged Buyouts," Journal of Finance, American Finance Association, vol. 67(6), pages 2187-2213, December.
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    More about this item

    Keywords

    Corporate governance; Investment; Public firms;

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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