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We are grateful to seminar audiences at HBS, NYU, NCCU, and the IDC Summer Finance Conference for their comments. Ljungqvist gratefully acknowledges the generous hospitality of Harvard Business School while working on this project. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

We survey the literature on payout policy, with a particular emphasis on developments in the past two decades. The cross-sectional empirical evidence for the traditional motivations behind firms paying out (agency, signaling, and taxes) is most persuasive with regard to agency considerations. Studies centered on the May 2003 dividend tax cut confirm that differences in the taxation of dividends and capital gains have only a second-order impact on setting payout policy. None of the three traditional explanations can account for secular changes in how payouts have been made over the past 30 years, during which repurchases have replaced dividends as the prime vehicle for corporate payouts. Other payout motivations, such as changes in compensation practices and management incentives, are better able to explain the observed variation in payout patterns over time than the traditional motivations. The most recent evidence suggests that further insights can be gained from viewing payout decisions as an integral part of a firm’s larger financial ecosystem, with important implications for financing, investment, and risk management.

We provide evidence on the value of patents to startups by leveraging the quasi‐random assignment of applications to examiners with different propensities to grant patents. Using unique data on all first‐time applications filed at the U.S. Patent Office since 2001, we find that startups that win the patent “lottery” by drawing lenient examiners have, on average, 55% higher employment growth and 80% higher sales growth five years later. Patent winners also pursue more, and higher quality, follow‐on innovation. Winning a first patent boosts a startup’s subsequent growth and innovation by facilitating access to funding from venture capitalists, banks, and public investors.

We evaluate differences in investment behavior between stock market listed and privately held firms in the U.S. using a rich new data source on private firms. Listed firms invest less and are less responsive to changes in investment opportunities compared to observably similar, matched private firms, especially in industries in which stock prices are particularly sensitive to current earnings. These differences do not appear to be due to unobserved differences between public and private firms, how we measure investment opportunities, lifecycle differences, or our matching criteria. We suggest that the patterns we document are most consistent with theoretical models emphasizing the role of managerial myopia.Key words: Corporate investment; Q theory; Private companies; Managerial incentives; Agency costs; Short-termism; Managerial myopia; IPOs.JEL classification: D22; D92; G31; G32; G34. This paper compares the investment behavior of stock market listed (or 'public') firms to that of observably similar privately held (or 'private') firms, using a novel panel dataset of private U.S. firms that contains data for around 250,000 firm-years over the period [2001][2002][2003][2004][2005][2006][2007]. Almost everything we know about corporate investment at the micro level is based on evidence from public firms, 1 which number only a few thousand, yet private firms form a substantial part of the U.S. economy. 2 We estimate that in 2007, private U.S. firms accounted for 54.5% of aggregate non-residential fixed investment, 67.1% of privatesector employment, 57.6% of sales, and 20.6% of aggregate pre-tax profits. Nearly all of the 6 million U.S. firms are private (only 0.08% are listed), and many are small, but even among the larger firms, private firms predominate: Among those with 500 or more employees, for example, private firms accounted for 85.6% in 2007. 3 Our empirical tests unearth two intriguing new patterns. First, a nearest-neighbor matching estimator reveals that private firms invest substantially more than do public firms matched on size and industry. On average, private firms invest nearly 10% of total assets a year compared to only 4% among public firms.Second, private firms are 3.5 times more responsive to changes in investment opportunities than are public firms, based on standard investment regressions in the tradition of tests of the Q theory of investment (see Hayashi (1982) or, more recently, Gomes (2001), Cummins, Hassett, and Oliner (2006), Bloom, Bond, and van Reenen (2007), or Bakke and Whited (2010)).The difference in investment sensitivities does not appear to be driven by lifecycle effects, how we measure investment opportunities, or which characteristics we match on. In addition, we exploit a plausibly exogenous tax shock to sidestep the need to directly measure investment opportunities, which may be measured with error. This experiment reveals that private firms respond strongly to changes in investment opportunities whereas public firms barely respond at all. In another alterna...