Characteristics play a similar role in describing returns in private rms as in public rms. This evidence suggests a causal e¤ect of optimal investment underlying the role of characteristics, as private rms do not have stock prices to over- or under-react on. Common factor models largely describe the cross section of investment returns of both types of rms, suggesting that the common factors are likely aggregate risk factors. Finally, the cost of capital and rm valuations are similar across private and public rms.
Cooper, Ilan and Richard Priestley. 2016. “The expected returns and valuations of private and public firms.” Journal of Financial Economics, 120(1):41-57