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Digital technology adoption and investment sensitivity to stock price

Author

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  • Lan, Yuan
  • Xian, Jinkun
  • Bai, Nannan

Abstract

This paper investigates whether and how digital technology affects the sensitivity of corporate investment to stock price in China. Employing text analysis, we measure firm-level adoption of digital technology. Our findings show that digital technology has a strong positive effect on the investment-to-price sensitivity. After addressing endogeneity problems and conducting a set of robustness tests, the main effect remains consistent. Mechanism tests suggest that digital technology enhances stock price informativeness, thereby increasing the investment sensitivity to stock price. Furthermore, this positive effect is more pronounced among firms with lower information transparency, higher institutional ownership, and higher managerial ownership. Our paper contributes to the literature by demonstrating that digital technology helps to improve the investment-to-price sensitivity.

Suggested Citation

  • Lan, Yuan & Xian, Jinkun & Bai, Nannan, 2024. "Digital technology adoption and investment sensitivity to stock price," Economics Letters, Elsevier, vol. 243(C).
    • Handle: RePEc:eee:ecolet:v:243:y:2024:i:c:s0165176524004191
    DOI: 10.1016/j.econlet.2024.111935
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    More about this item

    Keywords

    Digital technology; Investment-to-price sensitivity; Price informativeness;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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