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

Brad Badertscher, Nemit Shroff, Hal D. White

Research output: Contribution to journalArticle

75 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)682-706
Number of pages25
JournalJournal of Financial Economics
Volume109
Issue number3
DOIs
StatePublished - Sep 1 2013

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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