Public firm presence, growth opportunity and investment in fixed intangible assets of private UK firms

Purpose: Prior studies suggest that, in an industry in which several public firms operate (i.e., greater public firm presence), uncertainty about business operations within the industry is reduced due to greater analyst coverage and quality of information disclosure. In this study, we examine how UK private firms respond to investment opportunities in fixed intangible assets in an environment characterised by greater public firm presence.

Design/method/approach: Using data from 61,278 (1,358) private (public) UK firms operating in ten (10) sectors spanning from 2006 to 2016, we conduct our analysis by using panel econometric techniques.

Findings: We observe that private firms are more responsive to their fixed intangible asset (FIA) investment opportunities when they operate in industries with more public firm presence. Also, we find that firms in industries with better information quality use more debt and have longer debt maturity security but less internal cash flow. Overall, our findings indicate that public firm presence generates positive externalities for private firms by lessening industry uncertainty and enhancing more efficient FIA investment. Our results are robust to endogeneity concerns.

Originality/value: While this paper builds on the information disclosure and corporate investment literature, it is one of the first attempts, to the best of our knowledge, to explore how private UK firms respond to investment in fixed intangible assets in an environment characterised by greater public firm presence.