Corporate Investment and Stock Market Listing: A Puzzle?

Asker, John; Farre-Mensa, Joan; Ljungqvist, Alexander

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Corporate Investment and Stock Market Listing: A Puzzle?

NYU Working Paper No. FIN-11-016

53 Pages Posted: 14 Dec 2011 Last revised: 22 Apr 2013

See all articles by John Asker

Joan Farre-Mensa

University of Illinois at Chicago - Department of Finance

Alexander Ljungqvist

Centre for Economic Policy Research (CEPR); Swedish House of Finance; European Corporate Governance Institute (ECGI)

There are 3 versions of this paper

Date Written: April 22, 2013

Abstract

We document sizeable and surprising 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 substantially less and are less responsive to changes in investment opportunities compared to matched private firms, even during the recent financial crisis. These differences do not reflect observable economic differences between public and private firms (such as lifecycle differences) and instead appear to be driven by a propensity for public firms to suffer greater agency costs. Evidence showing that investment behavior diverges most strongly in industries in which stock prices are particularly sensitive to current earnings suggests public firms may suffer from managerial myopia.

Keywords: Corporate investment, Q theory, Private companies, Managerial incentives, Agency costs, Short-termism, Managerial myopia, IPOs

JEL Classification: D22, D92, G31, G32, G34

Suggested Citation: Suggested Citation

Asker, John William and Farre-Mensa, Joan and Ljungqvist, Alexander and Ljungqvist, Alexander, Corporate Investment and Stock Market Listing: A Puzzle? (April 22, 2013). NYU Working Paper No. FIN-11-016, Available at SSRN: https://ssrn.com/abstract=1972117