Externalities of Public Firm Presence: Evidence from Private Firms’ Investment Decisions

By Brad A. Badertscher, Nemit Shroff, Halbert White. 2013

370 citations recorded by the source corpus.

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.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/7b50f32dcd4bb8864cf9056b4d72ddf09c9574f9

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Citations in the corpus

Is the Risk of Product Market Predation a Cost of Disclosure (2016, background): “…companies and public firms).25 Ali et al. (2009) show that incorporating private firm data is critical to proxy for industry concentration, consistent with the importance of private firms to economic activity in the US and Europe (Badertscher et al., 2013; Minnis, 2011; Allee and Yohn, 2009).”
The Effect of Tax Authority Monitoring and Enforcement on Financial Reporting Quality (2014, positive): “…in Russia was well publicized making it very likely that this information was known to both managers and investors.26 Following Hanlon et al. (2008) and Badertscher et al. (2013), we measure earnings informativeness using the contemporaneous relation between stock returns and changes in earnings.”
Does the financial crisis change the effect of financing on investment? Evidence from private SMEs (2020, positive): “Investment_2 is calculated as the annual increase in fixed assets plus depreciation (Badertscher et al., 2013).”
Common Auditors in M&A Transactions (2016, neutral): “…by reducing agency problems caused by information asymmetry (e.g., Biddle et al., 2009; Biddle and Hilary, 2006), by providing peer firms with more information (e.g., Badertscher et al., 2013), and by providing information to managers within the firm (Shroff, 2014; McNichols and Stubben, 2008).”
Political Uncertainty and IPO Activity: Evidence from U.S. Gubernatorial Elections (2017, background): “…through employment and ownership of stock by local investors (Butler, Fauver, and Spyridopoulos (2015)), through information externalities (Badertscher, Shroff, and White (2013)), or through supply chain (Kutsuna, Smith, Smith, and Yamada (2016)). economic environment that firms operate…”
The Effect of Accounting Conservatism on Corporate Investment during the Global Financial Crisis: THE EFFECT OF ACCOUNTING CONSERVATISM (2016, positive): “Prior studies (e.g., Biddle and Hilary 2006; Biddle et al. 2009; Badertscher et al. 2013; Francis and Martin 2010; Goodman et al. 2014; Shroff 2014; Shroff et al. 2014) provide evidence that financial reporting affects investment efficiency.”
Real Effects of the Audit Choice (2016, positive): “For example, Bushee and Leuz (2005) show that disclosure regulation has positive externalities with respect to stock liquidity and Badertscher et al. (2013) and Shroff et al.”
Information Environment and the Investment Decisions of Multinational Corporations (2013, methodology): “Following Wurgler (2000), Bekaert et al. (2007), and Badertscher et al. (2013), we focus on the sensitivity of a subsidiary’s investment to 3 its growth opportunities.”
Evidence-based policymaking: promise, challenges and opportunities for accounting and financial markets research** (2018, neutral): “Accounting research has studied such effects in capital markets (e.g. Bushee and Leuz 2005, Badertscher et al. 2013), although the number of studies is low and the evidence still needs to be corroborated and extended.”
The effects of financial reporting and disclosure on corporate investment: A review (2019, background): “For example, while the evidence in Badertscher et al. (2013) suggests that private firms benefit from the reporting of public firms, they are unable to document the cost of these disclosures to public firms; i.”
Policy uncertainty, investment, and the cost of capital (2018, neutral): “3 For earlier empirical evidence on the negative relation between uncertainty and corporate investment, see Pindyck and Solimano (1993), Leahy and Whited (1996), Guiso and Parigi (1999), Bond and Cummins (2004), Eisdorfer (2008), and Badertscher et al. (2013).”