Do Public and Private Firms Behave Differently? An Examination of Investment in the Chemical Industry

Albert Sheen

Journal of Financial and Quantitative Analysis, 2020, vol. 55, issue 8, 2530-2554

Abstract: I compare the U.S. capacity expansion decisions of public and private producers of 7 commodity chemicals from 1989 to 2006. I find that private firms invest differently than public firms. Private firms are more likely than public firms to increase capacity prior to a positive demand shock (an increase in price and quantity) and less likely to increase capacity before a negative demand shock. Potential mechanisms include public firm overextrapolation of past demand shocks and agency problems arising from greater separation between ownership and control.

Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:55:y:2020:i:8:p:2530-2554_4

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