Comparing the cash policies of public and private firms

I document that public U.S. firms hold twice as much cash as large privately held firms, a surprising finding that is robust to three alternative identification strategies: matching, within-firm variation, and IV. Public firms' greater access to capital accounts for about one-quarter of the difference. The remainder can be explained by differences in the extent to which public and private firms engage in market timing in response to misvaluation shocks. I show that the risk of misvaluation induces public firms to raise capital and accumulate cashreserves when they perceive their equity to be overvalued, resulting in greater demand for recautionary cash holdings.