More from the Author

• Working Paper | 2011

  Comparing the Investment Behavior of Public and Private Firms

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

  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. "Comparing the Investment Behavior of Public and Private Firms." ECGI Working Paper Series in Finance, No. 282/2010, July 2011.

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• Other Unpublished Work | 2011

  Comparing the Cash Policies of Public and Private Firms

  Joan Farre-Mensa

  Even among large U.S. firms, most choose to remain private rather than listing on a stock market. I show that an important reason for this choice is public firms' inability to disclose information selectively. This leads to a "two-audiences" problem: Disclosure reduces information asymmetries among investors but also potentially benefits product-market competitors. Being public involves a trade-off between this disclosure cost and the benefit of a lower cost of capital due to the greater liquidity with which shares can be traded on a stock market. Using a rich new dataset on private U.S. firms, I show that firms in industries with high disclosure costs and high information asymmetry are more likely to remain private while firms in industries that require a large scale to operate efficiently are more likely to be public. I then establish a new stylized fact: Public firms hold more cash than private firms, particularly when they operate in industries in which disclosing information to competitors is most costly. This fact is robust to several ways of addressing the endogeneity of the going-public decision, including matching, exploiting within-firm variation, and instrumental variables. Consistent with my model, I find that public firms hoard cash in order to mitigate the disclosure costs associated with raising capital.

  Keywords: Private Sector; Public Sector; Cash; Cost of Capital; Financial Liquidity; Stock Shares; Financial Markets; Corporate Disclosure; Product Marketing; Going Public; Performance Efficiency; Competition; United States;

  Citation:

  Farre-Mensa, Joan. "Comparing the Cash Policies of Public and Private Firms." 2011.

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• Other Unpublished Work | 2011

  What Do Private Firms Look Like?

  John Asker, Joan Farre-Mensa and Alexander Ljungqvist

  Private firms in the U.S. are not subject to public reporting requirements, so relatively little is known about their characteristics and behavior—until now. This Data Appendix describes a new database on private U.S. firms, created by Sageworks Inc. in cooperation with hundreds of accounting firms. The contents of the Sageworks database mirror Compustat, the standard database for public U.S. firms. It contains balance sheet and income statement data for 95,297 private firms covering 250,507 firms-years over the period 2002 to 2007. We compare this database to the joint Compustat-CRSP database of public firms and to the Federal Reserve's 2003 National Survey of Small Business Finances.

  Keywords: Financial Statements; Private Sector; Public Sector; Data and Data Sets; Behavior; United States;

  Citation:

  Asker, John, Joan Farre-Mensa, and Alexander Ljungqvist. "What Do Private Firms Look Like?" 2011.

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