Private Firms: Friends or Foes of Public Firms?
Abstract
We examine the impact of positive private firm innovation shocks and private firm liquidity shocks on existing public firm peers using an extensive dynamic textual net- work. We build this textual network using a LLM to analyze millions of internet web- pages over time from 2000 to 2021 from the Internet WayBack Machine. We document that state-level shocks to the incentives of private firms to invest in R&D have positive effects on related public firms consistent with product market complementarities. Af- ter these innovation shocks to private peers, related public firms increase acquisitions of private firms and have improved profitability, sales growth, competitive positioning, andinvestmentsincludingR&D.Incontrast, state-levelliquidityshocks, whichinstead relax financing constraints of private firms located in these states, negatively impact related public firms, consistent with substitution and private firms increasing compet- itive pressure on public firms. These results indicate a new empirical framework and novel indications of where private firms are either complements or substitutes to larger public firms. ∗University of Southern California Marshall School of Business and Tuck School of Business at Dart- mouth College and National Bureau of Economic Research, respectively. Hoberg can be reached at hoberg@marshall.usc.edu. Phillips can be reached at gordon.m.phillips@tuck.dartmouth.edu. We thank the National Science Foundation for funding earlier work that laid the foundation for this project (grants #1561068 and #1937153). We thank seminar participants at Aalto University, Tulane University, the Uni- versity of Amsterdam, and Vrije University of Amsterdam. We thank Xinwei Du, Prathamesh Koranne, Deepti Poloru, and Himanshu Rawlani for excellent research assistance. All errors are the authors’ alone. Copyright ©2024 by Gerard Hoberg and Gordon Phillips. All rights reserved. Are Private and Public Firms Friends or Foes? Evidence from Millions of Webpages Abst