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Do private firms (mis)learn from the stock market?

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  • Dong Yan

Abstract

This article examines whether and to what extent private firms learn from the stock market. Using a large panel data set for the UK, I find that private firms’ investment responds positively to the valuation of public firms in the same industry. The sensitivity increases with price informativeness. To further pin down the information channel, I construct a price noise measure based on public firms’ unrelated minor segments and show that it positively affects the investment of private firms in the major-segment industry. The results are consistent with models featuring learning from noisy signals and are not driven by alternative channels in the absence of learning. My findings suggest that the stock market can have real effects on private firms through an information-spillover channel, even when these firms do not list their shares on the stock exchanges.

Suggested Citation

  • Dong Yan, 2024. "Do private firms (mis)learn from the stock market?," Review of Finance, European Finance Association, vol. 28(5), pages 1483-1511.
  • Handle: RePEc:oup:revfin:v:28:y:2024:i:5:p:1483-1511.
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    File URL: http://hdl.handle.net/10.1093/rof/rfae020
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    More about this item

    Keywords

    corporate investment; learning; information diffusion; private firms;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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