The Real Benefits of Being Public: Evidence from Public and Private Firms

Abstract

In this paper, we study efficiency of capital allocation across public and private firms. Using a large dataset that contains financial data on both public and private European firms, we investigate to what extent firms with good (poor) growth opportunities increase (decrease) corporate investment. We find that, on average, public listed firms display higher investment sensitivity to growth opportunities than public unlisted and private firms. This differential, however, only exists in countries with well-developed stock markets. Our results suggest that stock market development provides advantage to public firms in capital allocation over private firms.