Financing Decisions and Product Introductions of Private and Publicly Traded Firms

We exploit Medicare national coverage reimbursement approvals of medical devices as a quasi-natural experiment to investigate how private and publicly traded firm financing decisions and product introductions respond to exogenous changes in investment opportunities. We find that publicly traded companies increase their external financing, and their subsequent product introductions, by more than private companies in response to national coverage approvals. The primary source of the increased financing is through private financing of public firms. We also show that firms that select to go public during our sample period are ex ante more productive than similar private firms. The results are consistent with public firms bearing the costs of going public to gain financing advantages that come from being able to offer securities with better exit liquidity and lower price risk.