Policy Uncertainty and Corporate Investment : Public vs. Private Firms

Using a sample of comparable public listed and private firms from nine European countries, we show that public firms reduce their investments by about 50% more than private firms in periods of elevated policy uncertainty. We find suggestive evidence that this can be explained by public firms' management being typically subject to greater scrutiny by their shareholders than private firms' management. Furthermore, only public firms invest more efficiently in periods of uncertainty than during normal times. Thus, private firms may benefit from emulating the decision-making processes of public firms when confronted with uncertainty