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

Published online by Cambridge University Press:  09 August 2019

Albert Sheen Open the ORCID record for Albert Sheen [Opens in a new window]
Albert Sheen*
Affiliation:
asheen@uoregon.edu, asheen@uoregon.edu, University of Oregon Lundquist College of Business
*
asheen@uoregon.edu
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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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 55 , Issue 8 , December 2020 , pp. 2530 - 2554
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2019

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Footnotes

I thank Dan Ackerberg, Tony Bernardo, Sreedhar Bharath, Bruce Carlin, Jonathan Cohn (the referee), Cesare Fracassi, Mark Garmaise, Mark Grinblatt, Jarrad Harford (the editor), Marvin Lieberman, David Scharfstein, Eduardo Schwartz, Geoff Tate, and seminar participants at Boston College, Dartmouth, Harvard Business School, the University of Illinois, the University of Michigan, the University of Oregon, the University of Texas–Austin, the University of Toronto, USC, Yale University, and the Western Finance Association 2009 conference for helpful comments.

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