Using a panel database of the listed and unlisted firms in China, we compare the differences of investment behavior between listed and unlisted firms in China, matched by size and industry, from 1998 to 2007. We find that listed firms invest more than unlisted firms, and firms in protected industries invest more than firms in unprotected industries. Unlisted firms have higher sensitivity of investment to investment opportunities and lower sensitivity of investment to cash flow than listed firms. Firms in unprotected industries have lower sensitivity of investment to investment opportunities and lower sensitivity of investment to cash flow than firms in protected industries. Non-SOEs have higher sensitivity of investment to investment opportunities and lower sensitivity of investment to cash flow than SOEs. We attribute our findings to the agency problem in listed firms, namely the managerial myopia and “empire building” behavior of their managers, policy-driven investments in protected firms and SOEs, political incentives of the SOEs’ managers, and government support for the protected industries.