Research Summary

Comparing the Investment Behavior of Public and Private Firms

by Joan Farre-Mensa


Professor Farre-Mensa and his co-authors 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 with observably similar, matched private firms, especially in industries in which stock prices are highly sensitive to current earnings. These findings suggest that managerial myopia or short-termism may distort the investment decisions of public firms.