Externalities of public firm presence: Evidence from private firms' investment decisions

Brad Badertscher, Nemit Shroff and Hal D. White

Journal of Financial Economics, 2013, vol. 109, issue 3, 682-706

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.

Keywords: Corporate investment; Uncertainty; Q theory; Private companies; Corporate disclosure; Financial accounting; Disclosure regulation (search for similar items in EconPapers)
JEL-codes: D81 G31 G32 G38 M41 M48 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (112)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304405X13000925
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:109:y:2013:i:3:p:682-706

DOI: 10.1016/j.jfineco.2013.03.012

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().