Investment differences between public and private firms: Evidence from U.S. tax returns

•Public firms invest significantly more in R&D than similar private firms.•Public firms invest roughly 50% more in R&D relative to their asset bases.•Public firms also invest 7.4 percentage points more of total investments in R&D.•Public and private firm physical capital investment is indistinguishable.•The public firm investment advantage holds after accounting for earnings pressures. Using tax data, we compare the investment behavior of public and private firms for a representative sample of all U.S. corporations. We find that while both types of firms invest similarly in physical capital, public firms out-invest private firms in R&D. Compared to observationally-similar private firms, public firms invest roughly 50% more in R&D relative to their asset bases. Further, public firms dedicate 7.4 percentage points more of their investments to R&D than private firms. This stronger public firm R&D investment is muted when shareholder earnings pressures are heightened, but not so much as to overcome the baseline investment advantage.