Financing and New Product Decisions of Private and Publicly Traded Firms

Gordon M. Phillips · Giorgo Sertsios

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Corporate Finance and Governance Financial Markets and Investment Strategies Private Equity and Venture Capital

Abstract

We exploit Medicare national coverage reimbursement approvals as a quasi-natural experiment to investigate how the financing decisions of private and publicly traded firms respond to changes in investment opportunities. We find that publicly traded companies increase their external financing and their subsequent product introductions by more than private companies in response to national coverage approvals. Private equity financing is the primary source of the increased financing for public firms. We show that the stock characteristics of publicly traded firms, such as liquidity and price informativeness, and product market competition are important factors in explaining their financing advantage. Received March 25, 2016; editorial decision October 1, 2016 by Editor Itay Goldstein.

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References

2008Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches 2002Illiquidity and stock returns: cross-section and time-series effects 1996Financial Dependence and Growth 2002Venture Capital and the Professionalization of Start‐Up Firms: Empirical Evidence 1998Why Do Companies Go Public? An Empirical Analysis 2006Price Informativeness and Investment Sensitivity to Stock Price 1995Venture Capitalists and the Oversight of Private Firms 1999A New Estimate of Transaction Costs

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