Working Paper | 2011

Corporate Investment and Stock Market Listing: A Puzzle?

by John Asker, Joan Farre-Mensa and Alexander P. Ljungqvist

Abstract

We evaluate differences in investment behavior between stock market listed and privately held firms in the U.S. using a rich new data source on private firms. Listed firms invest less and are less responsive to changes in investment opportunities compared to observably similar, matched private firms, especially in industries in which stock prices are particularly sensitive to current earnings. These differences do not appear to be due to unobserved differences between public and private firms, how we measure investment opportunities, lifecycle differences, or our matching criteria. We suggest that the patterns we document are most consistent with theoretical models emphasizing the role of managerial myopia.

Keywords: Private Ownership; Behavior; Investment; Public Ownership;

Citation:

Asker, John, Joan Farre-Mensa, and Alexander P. Ljungqvist. "Corporate Investment and Stock Market Listing: A Puzzle?" ECGI Working Paper Series in Finance, No. 282/2010, July 2011.