Abstract
We analyze a unique dataset that separately reports research and development expenditures for a large panel of public and private firms. We establish new empirical facts about how equity ownership status relates to innovation strategy and then compare these facts to equilibrium outcomes predicted by theory. We find public firms have greater research intensity than private firms, inconsistent with theories predicting an equilibrium wherein private firms conduct relatively more exploratory innovation. We also find public firms invest more intensely in innovation of all sorts. These results suggest more innovative firms select into public status, which relaxes financing constraints and provides a more diversified shareholder base more tolerant of high idiosyncratic risk. Reconciling several seemingly conflicting results in prior research, we find private equity held firms, though equally innovative as other private firms, skew their strategies toward development and away from research.
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