Study using Sageworks data: Private cos. out-invest publicly traded cos.
Privately held companies invest substantially more than do publicly traded companies matched for industry and size, according to a recent study by researchers at New York University and Harvard University that used Sageworks’ data. The findings are consistent with theories linking conservative investing to public firm executives’ worries over stock prices, according to the working paper for the National Bureau of Economic Research.
Ninety-nine percent of U.S. firms with employees are privately held, so their investments in capital expenditures and mergers and acquisitions are important as the economy continues to recover from the worst recession since the Great Depression. Relatively little has been known, however, about how these companies invest, and how the behavior compares to public companies, because private companies are rarely required to disclose their financials.
Using private-company data from Sageworks, the researchers found that private firms, on average, invest nearly 10 percent of total assets each year, compared with only 4 percent investments for similar public firms.
Public companies also invest “in a way that is considerably less responsive to changes in investment opportunities, especially in industries in which stock prices are quite sensitive to earnings news,” write John Asker, associate professor of economics at New York University’s Stern School of Business, Joan Farre-Mensa, assistant professor at Harvard Business School, and Alexander Ljungqvist, NYU professor of finance and entrepreneurship.
Read the entire data release from Sageworks here.