The expected returns and valuations of private and public firms

Ilan Cooper, Richard Priestley

Research output: Contribution to journalArticlepeer-review


Characteristics play a similar role in describing returns in private firms as in public firms. This evidence suggests a causal effect of optimal investment underlying the role of characteristics, as private firms do not have stock prices to over- or under-react on. Common factor models largely describe the cross section of investment returns of both types of firms, suggesting that the common factors are likely aggregate risk factors. Finally, the cost of capital and firm valuations are similar across private and public firms.

Original languageEnglish
Pages (from-to)41-57
Number of pages17
JournalJournal of Financial Economics
Issue number1
StatePublished - 1 Apr 2016
Externally publishedYes

Bibliographical note

Funding Information:
This paper was previously circulated as “The cross section of industry investment returns”. We thank Doron Avramov, Azi Ben-Rephael, Xi Chen, Thierry Foucault, Fangjian Fu, Ignacio Garcia de Ollala Lopes, Andreea Mitrache, Øyvind Norli, Avi Wohl, Lu Zhang, and seminar participants at Ben-Gurion University, the Center for Corporate Governance Research workshop at the Norwegian Business School, University of Cyprus, University of Haifa, IE Madrid, the Technion, and participants at the 2013 European Finance Association and the 2013 World Finance Conference for helpful comments and suggestions. G. William Schwert (the editor) and an anonymous referee deserve special thanks. Andreea Mitrache provided superb research assistance. We are grateful for the Center for Corporate Governance Research at BI Norwegian Business School, and the Center for Asset Pricing Research at BI Norwegian Business School, for financial support. We thank Eric J. Bartelsman, Randy A. Becker and Wayne B. Gray for graciously making the Manufacturing Industry Productivity Database available. All remaining errors are our own.

Publisher Copyright:
© 2016.


  • Cost of capital
  • Investment returns
  • Mispricing
  • Private firms
  • Public firms
  • Q theory
  • Real investment
  • Systematic risk

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


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