Externalities of public firm presence: Evidence from private firms' investment decisions
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Shroff_Externalities of.pdf
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Author(s)
Badertscher, Brad
Shroff, Nemit
White, Hal D.
Date Issued
April 2013
Journal
Journal of Financial Economics
Publisher
Elsevier
Citation
Badertscher, Brad, Nemit Shroff, and Hal D. White. “Externalities of Public Firm Presence: Evidence from Private Firms’ Investment Decisions.” Journal of Financial Economics 109, no. 3 (September 2013): 682–706.
Version
Author's final manuscript
Abstract
Public firms provide a large amount of information through their disclosures. In addition, information intermediaries publicly analyze, discuss, and disseminate these disclosures. Thus, greater public firm presence in an industry should reduce uncertainty in that industry. Following the theoretical prediction of investment under uncertainty, we hypothesize and find that private firms are more responsive to their investment opportunities when they operate in industries with greater public firm presence. Further, we find that the effect of public firm presence is greater in industries with better information quality and in industries characterized by a greater degree of investment irreversibility. Our results suggest that public firms generate positive externalities by reducing industry uncertainty and facilitating more efficient private firm investment.
MIT Department
Sloan School of Management
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Creative Commons Attribution-Noncommercial-Share Alike
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DOI of Published Version
https://doi.org/10.1016/j.jfineco.2013.03.012
