The expected returns and valuations of private and public firms

Ilan Cooper and Richard Priestley

Journal of Financial Economics, 2016, vol. 120, issue 1, 41-57

Abstract: Characteristics play a similar role in describing returns in private firms as in public firms. This evidence suggests a causal effect of optimal investment underlying the role of characteristics, as private firms do not have stock prices to over- or under-react on. Common factor models largely describe the cross section of investment returns of both types of firms, suggesting that the common factors are likely aggregate risk factors. Finally, the cost of capital and firm valuations are similar across private and public firms.

Keywords: Real investment; Systematic risk; Mispricing; q theory; Investment returns; Cost of capital; Private firms; Public firms (search for similar items in EconPapers)
JEL-codes: G0 G12 G31 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:120:y:2016:i:1:p:41-57

DOI: 10.1016/j.jfineco.2016.01.023

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