Firm Listing Status and the Investment Home Bias
48 Pages Posted: 26 Jul 2019 Last revised: 23 Mar 2020
Date Written: July 24, 2019
Abstract
Prior research has found that public firm investment rates are more sensitive than private firm investment rates to new investment opportunities. We confirm these findings and offer a new explanation for this result. Public and private firm investment sensitivities differ because the types of investments favored by firms varies with their listing status. Private firms have a much stronger investment home-bias than similar public firms which makes their investment decisions more sensitive to measures of local, non-industry investment opportunities, but due to resource constraints less sensitive to firm- and industry-measures of investment opportunities. Controlling for both types of investment opportunities explains roughly four-fifths of the differential sensitivity of public and private firms to new investment opportunities.
Keywords: Listing status, Investment home bias, International finance, Investment sensitivity
JEL Classification: D21, D92, G31, G32, G34
Suggested Citation: Suggested Citation