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

Edgerton, Jesse; Feldman, Naomi E.; Kawano, Laura; Patel, Elena; Rao, Nirupama; Stevens, Michael

doi:10.17016/FEDS.2018.068

Working Paper

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

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.

Keywords: Corporate governance; Investment; Public firms;

JEL Classification: G34; G31;

https://doi.org/10.17016/FEDS.2018.068