Private versus Public Corporate Ownership: Implications for Future Changes in Profitability

We investigate the association between public versus private ownership and future changes in profitability. Managers have long debated the implications of public and private corporate ownership; however, little empirical research has provided insight into the issue. We find robust evidence that public firms are associated with significantly lower future changes in operating profitability compared to private firms matched on current profitability, size, growth, and industry. We also find that the differential future changes in profitability of public and private firms manifests in both future changes in profit margins and changes in asset turnovers. Additionally, we find evidence consistent with an association between short-termism, competition, and agency costs and the lower future changes in profitability for public versus private firms. The results provide insight for managers and investors into the differential future changes in profitability of public versus private firms and into the factors that drive the differential profitability.