|Publication||Investment and financing decisions of private and public firms|
University of Hamburg, HEC Montreal
Corporate investment, q theory, agency costs, private firms, managerial incentives
This paper analyzes the investment and financing decisions of private and public firms. We focus on their use of cash flow and find that private firms have lower investment-cash flow sensitivities and a stronger link between performance and shareholder distributions, a behavior that is consistent with private firms suffering from fewer agency conflicts. However, our results are only observable in countries with a highly developed and liquid stock market and low ownership concentration. It is the “dark side” of liquidity that reduces the incentives for shareholders to actively monitor managers and leads to inefficient cash flow allocation in public firms.
EFMA 2016 (Basel), AFBC 2016 (Sydney)