Joseph J. French, Ryosuke Fujitani, Yukihiro Yasuda
NBER Working Paper No. 26495
They provide the first large sample comparison of investment by Japanese listed and unlisted public firms. They show that listed firms invest more and have greater sensitivity to investment opportunities than comparable unlisted companies. Their findings suggest that the role of listing in alleviating financial constraints is more important than potential underinvestment due to myopic behavior. However, the positive relationship between listing and investment is primarily driven by standalone firms. Further analysis confirms that as the number of subsidiaries in a business group increases the positive impact of listing on investment declines. Additionally, when a firm faces financial constraints listing more positively impacts investment. They also document a positive association between stock liquidity and investment for listed firms. Taken together, our results suggest that stock markets play an important role in easing financial constraints and preventing managerial shirking both of which increase investment. Finally, they show that higher levels of owner-ship by financial institutions, board members, and foreign investors increases corporate investment.