Assistant Professor of Business Administration
Joan Farre-Mensa is an assistant professor of business administration in the Entrepreneurial Management Unit, where he teaches the Entrepreneurial Manager course in the MBA required curriculum.
Professor Farre-Mensa’s research interests center on entrepreneurial finance, corporate finance, and corporate governance. His most recent research analyzes the costs and benefits associated with the listing of a firm on a stock market. In particular, he has studied how the differences in disclosure requirements between public and private firms affect their optimal cash policies and the effects of short-termism on the investment decisions of public firms.
Professor Farre-Mensa earned his Ph.D. in economics at New York University. His earlier education was in his native Spain: he holds an M.Phil. in economics from Universitat Autònoma de Barcelona and a bachelor’s degree in mathematics from Universitat de Barcelona.
Comparing the Investment Behavior of Public and Private Firms
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.
Why Are Most Firms Privately Held?
Even among large U.S. firms, most choose to remain private rather than listing on a stock market. Professor Farre-Mensa argues that an important reason for this choice is public firms’ inability to disclose information selectively to investors. This situation leads to a “two-audiences” problem: investors need information to better value a firm, but if the information is made public it may benefit the firm’s product-market competitors. Being public involves a trade-off between the problem of two audiences and the benefit of the relatively lower cost of capital faced by public firms. Professor Farre-Mensa’s empirical analysis, consistent with this trade-off, shows that firms in industries with high disclosure costs are more likely to remain private, while firms in industries that require a large scale to operate efficiently are more likely to be public. He then establishes 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 finding suggests that public firms hoard cash in order to mitigate the disclosure costs associated with raising capital.