The Effects of Public and Private Equity Markets on Firm Behavior

Shai Bernstein ()
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Shai Bernstein: Harvard Business School, Cambridge, Massachusetts, USA

Annual Review of Financial Economics, 2022, vol. 14, issue 1, 295-318

Abstract: In this article, I review the theoretical and empirical literature on the effects of public and private equity markets on firm behavior, emphasizing the consequences that emerge from disclosure requirements, ownership concentration, and degree of firm standardization. While publicly listed firms benefit from a lower cost of capital, enabling increased focus on commercialization and profitability, they are less suited to pursue long-term risky investments. Privately held firms are better equipped to pursue innovative projects but face a higher cost of capital, which limits their growth. Complementarities between public and private equity markets can mitigate their respective limitations. Innovation in private equity markets supplements commercialization efforts of public firms, and demand for innovation by public firms accelerates entrepreneurial activity in private equity markets. I conclude by discussing directions for future research.

Keywords: commercialization; innovation; private equity; public equity markets; venture capital (search for similar items in EconPapers)
JEL-codes: G24 G3 G32 O3 O31 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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DOI: 10.1146/annurev-financial-052021-072939

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