The Long and the Short of It: Do Public and Private Firms Invest Differently?
62 Pages Posted: 25 Sep 2018 Last revised: 5 Nov 2019
Date Written: October 31, 2019
Using data from U.S. corporate tax returns, we investigate the differential investment propensities of public and private firms. Tax return data uniquely provide rich detail on corporate investment reported under identical standards and is representative of the universe of U.S. corporations. Using two empirical strategies we find robust evidence that public firms invest more in long-term assets – particularly innovation – than private firms. Focusing on firms that go public, we find that firms increase their R&D investment following their IPO. Our findings suggest that contrary to fears of ”short- termism”, public stock markets facilitate greater investment in risky, uncollateralized investments.
Keywords: Investment, public firms, corporate governance
JEL Classification: G31, G34
Suggested Citation: Suggested Citation