ESSAYS ON CORPORATE FINANCE AND GOVERNANCE: EVIDENCE FROM PRIVATE AND PUBLIC FIRMS GLOBALLY

Abstract

The analysis of key corporate decisions is mostly restricted to publicly listed firms even though privately held firms constitute a substantial part of any economy. In this dissertation, my goal is to enhance our understanding of some of the important decisions of private firms, namely: cash holdings, investment and performance using unique and large cross-country samples. In the first chapter, I examine cash holdings of private, unlisted firms versus publicly traded firms in 33 European countries during 2002-2011. I find that the average cash-to-assets ratios are lower in the Eurozone than in non-Eurozone countries by 5.4% due to lower transaction demand under a single currency regime. Public firms have higher cash ratios than private firms. However, the difference in cash ratios between public and private firms is higher in the Eurozone than in non-Eurozone countries, reflecting that: (a) precautionary demand is higher in the Eurozone due to risks and pitfalls of policy coordination, and (b) economic adjustments and transfers in the Eurozone more directly affect publicly traded firms than private ones. Moreover, I show that, during the financial crisis, corporate cash ratios increased in the Eurozone, indicating that the increase in precautionary cash demand was greater than a decrease in transaction demand due to the adoption of the Euro. In the second chapter, I compare the operating performance and efficiency of publicly and privately held firms in the UK over the period 2003-2012. I find that privately held firms typically perform better than publicly traded firms. This finding is robust in various model settings, using industry and size as well as propensity scored matched samples, considering alternative definitions of operating performance, ownership structure and taking into account the endogeneity of firm's exchange listing choice. I also show that average operating profitability of public firms is even lower than that of private firms when both types of firms are financially constrained. Finally, I show that informational value of R&D is higher for private firms than it is for public firms. In the third chapter, I examine the relationship between time horizons and corporate investment, both on the firm and country levels, for private, unlisted firms and publicly traded firms using a unique dataset from 73 countries around the world during the time period of 2003-2012. I show that a longer time horizon (i.e. higher propensity to save and invest) on a cultural and country level also manifests itself as higher investment at the firm level. This is robust to using alternative proxies for the country-level time horizon. Investment behavior of private firms, not public firms, follows a country-level horizon pattern, which is reflective of close monitoring by fewer owners and the absence of stock market pressures in making investment decisions. When I consider time-horizon at the firm-level, we find that firms with a longer time horizon invest more, and this effect is more pronounced for public firms than for private firms, given the former's greater, easier, and cheaper access to capital in the public capital market. I also show that public firms invest more and are more responsive to investment opportunities than private firms.