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Real Effects of Stock Underpricing

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  • Hau, Harald
  • Lai, Sandy

Abstract

This paper provides evidence for a causal effect of equity prices on corporate investment and employment. We use fire sales by distressed equity funds during the 2007-2009 financial crisis to identify substantial exogenous underpricing. Firms whose stocks are most underpriced have considerably lower investment and employment than industry peers not subject to any fire sale discount. The causal effect of underpricing on investment is found to be largely concentrated on the most financially constrained firms.

Suggested Citation

  • Hau, Harald & Lai, Sandy, 2012. "Real Effects of Stock Underpricing," CEPR Discussion Papers 8820, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:8820
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    More about this item

    Keywords

    Market inefficiency; Fire sales; Mutual funds; investment; Employment;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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