Robust evidence that public firms invest more overall, particularly in R&D, & dedicate more of their investment to R&D following IPO, & reduce upon going private

Feldman, Naomi, Laura Kawano, Elena Patel, Nirupama Rao, Michael Stevens, and Jesse Edgerton (2018). “The Long and Short of It: Do Public and Private Firms Invest Differently?,” Finance and Economics Discussion Series 2018-068. Washington: Board of Governors of the Federal Reserve System, https://doi.org/10.17016/FEDS.2018.068

Abstract: Using data from U.S. corporate tax returns, which provide a sample representative of the universe of U.S. corporations, we investigate the differential investment propensities of public and private firms. Re-weighting the data to generate observationally comparable sets of public and private firms, we find robust evidence that public firms invest more overall, particularly in R&D. Exploiting within-firm variation in public status, we find that firms dedicate more of their investment to R&D following IPO, and reduce these investments upon going private. Our findings suggest that public stock markets facilitate greater investment, on average, particularly in risky, uncollateralized investments.

JEL Codes: G31, G34.
Keywords: Investment, public firms, corporate governance