Corporate investment behavior : an empirical comparison of Norwegian public and private firms

Abstract

This thesis examines whether short-termism among Norwegian public firms distorts their investment decisions. We follow the study by Asker, Farre-Mensa and Ljungqvist (2014), using private firms as a counterfactual for how public firms would invest absent such short-term pressures. By relying on exact and propensity score matching, we do so by identifying public and private firms similar on dimensions thought to affect corporate investment. We find that public firms invest significantly less than their private counterparts. In addition, public firms invest in a way that tend to be less sensitive to changes in investment opportunities. These findings are not due to how we measure investment, nor to sampling or matching choices. Our findings suggest that short-term pressures distort the investment behavior of public firms, thus consistent with the study by Asker, Farre-Mensa and Ljungqvist (2014) of U.S. firms. Our thesis can thus be seen as one of the first linking short-termism to Norwegian corporate investment, and highlight a potential trade-off related to the going-public decision in Norway.