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Capital Allocation by Public and Private Firms

Published online by Cambridge University Press:  04 February 2013

Sandra Mortal  and
Natalia Reisel
Sandra Mortal
Affiliation:
scmortal@memphis.edu, Fogelman College of Business and Economics, University of Memphis, 3675 Central Ave, Memphis, TN 38152;
Natalia Reisel
Affiliation:
nreisel@fordham.edu, Gabelli School of Business, Fordham University, 1790 Broadway, New York, NY 10019.
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Abstract

We compare investment policies across public and private firms in different institutional settings. Using a large cross-country data set, we find that public listed firms are better positioned to take advantage of growth opportunities than private firms. Specifically, public listed firms exhibit higher investment sensitivity to growth opportunities than private firms. This differential, however, only exists in countries with well-developed stock markets. Furthermore, the relative advantage public firms have at allocating capital depends on the degree of agency costs and reliance on external equity.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 48 , Issue 1 , February 2013 , pp. 77 - 103
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2013 

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