Access to capital and investment composition: Evidence from fracking in North Dakota

Abstract

We investigate how access to capital relates to the firms' investment decisions and project characteristics. We use project-level hydraulic fracturing (fracking) data from the energy industry to show that privately held firms more intensely invest in newer, non-proven areas while publicly-traded firms tilt investment toward well-established, proven areas. Furthermore, we find that exogenous improvements in private firms' access to finance decrease the investment wedge between private and public firms. Our results suggest that private firms minimize their financial disadvantages by targeting investment opportunities that have greater uncertainty.