TY - JOUR
T1 - Externalities of public firm presence
T2 - Evidence from private firms' investment decisions
AU - Badertscher, Brad
AU - Shroff, Nemit
AU - White, Hal D.
N1 - Funding Information:
We thank Jed Neilson for valuable research assistance. We appreciate helpful comments from an anonymous referee, Karthik Balakrishnan, Phil Berger, Mark Bradshaw, Anna Costello, Jim Fuehrmeyer, Cristi Gleason, Zhaoyang Gu (discussant), Amy Hutton, Becky Lester, Alexander Ljungqvist, Tim Loughran, Russ Lundholm, Andrey Malenko, Sarah McVay, Jeremy Michels (discussant), Mike Minnis, Dan Taylor, Paul Schultz, Rodrigo Verdi, Susan Watts (discussant), David Weber, Mike Willenborg, Gwen Yu, participants at the 2012 AAA Conference, 2012 Colorado Conference, 2012 Yale Conference, 2012 London Business School Conference, Boston College, MIT, New York University, University of California-Irvine, and University of Connecticut. We acknowledge financial support from the MIT Junior Faculty Research Assistance Program, Ernst and Young, Price waterhouse Coopers and the University of Notre Dame. All errors are our own.
PY - 2013/9
Y1 - 2013/9
N2 - 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.
AB - 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.
UR - http://www.scopus.com/inward/record.url?scp=84879793241&partnerID=8YFLogxK
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U2 - 10.1016/j.jfineco.2013.03.012
DO - 10.1016/j.jfineco.2013.03.012
M3 - Article
AN - SCOPUS:84879793241
SN - 0304-405X
VL - 109
SP - 682
EP - 706
JO - Journal of Financial Economics
JF - Journal of Financial Economics
IS - 3
ER -