Time horizon and corporate investment: Evidence from private and public firms around the world

Abstract

Despite their economic importance, private firms are under-researched. We examine the relationship between the country-level time horizon and corporate investment for private and public firms using a unique dataset including 75 countries from 2003 to 2017. We show that private, unlisted firms invest more in countries where the national culture is more long-term oriented. Compared to public firms, private firms are characterized by close monitoring of operations and investments by fewer owners, fewer agency costs due to more concentrated ownership structures, and the absence of short-term pressures from capital markets on investment decisions. This structure of private firms, in turn, lends itself to an informal institution like culture having relatively more influence on key private firm decisions than on those of public firms.