Investment Decisions of Private versus Public Firms: Clues from the Movie Industry

Raj Varma

Using detailed project-level data on hundreds of projects, this paper investigates risk and returns of projects by public and private firms in the movie industry. If the investments of private firms are adversely affected by their limited access to external equity markets, the returns of projects by public firms would be more favorable than those for similar projects by private firms. Alternatively, the converse would hold if public firms are plagued by inefficiencies that arise due to agency problems. The findings of the current study are consistent with theories in which public firms beset with agency problems engage in distorted investment behavior.

DOI : https://doi.org/10.21102/jbpr.2018.07.131.02