Other Unpublished Work | 2011

Do Public and Private Firms Behave Differently? An Examination of Investment in the Chemical Industry

by Albert W. Sheen


I compare the capacity expansion decisions of U.S. public and private producers of seven commodity chemicals from 1989-2006. I find that private firms invest differently, and more efficiently, than public firms. Specifically, private firms are more likely than public firms to increase capacity prior to a positive demand shock (an increase in price and quantity) and less likely to increase capacity before a negative demand shock. This result is particularly strong among private equity run firms. These findings are consistent with theories in which public firms are subject to greater agency concerns.

Keywords: Private Ownership; Chemicals; Investment; Public Ownership; Chemical Industry; United States;