Investment Differences Between Public and Private Firms: Evidence From U.S. Tax Returns

Authors: Naomi E. Feldman, Laura Kawano, Elena Patel, Nirupama Rao, Michael Stevens, Jesse Edgerton

Abstract: Using tax data, we compare the investment behavior of public and private firms for a representative sample of all U.S. corporations. We find that while both types of firms invest similarly in physical capital, public firms out-invest private firms in R&D. Compared to observationally-similar private firms, public firms invest roughly 50% more in R&D relative to their asset bases. Further, public firms dedicate 7.4 percentage points more of their investments to R&D than private firms. This stronger public firm R&D investment is muted when shareholder earnings pressures are heightened, but not so much as to overcome the baseline investment advantage.