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Learning from peers' stock prices and corporate investment

Author

Listed:
  • Thierry Foucault

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • Laurent Fresard

    (Robert H. Smith School of Business)

Abstract

Peers' valuation matters for firms' investment: a one standard deviation increase in peers' valuation is associated with a 5.9% increase in corporate investment. This association is stronger when a firm's stock price informativeness is lower or when its managers appear less informed. Also, the sensitivity of a firm's investment to its stock price is lower when its peers' stock price informativeness is higher or when demands for its products and its peers' products are more correlated. Furthermore, the sensitivity of firms' investment to their peers' valuation drops significantly after going public. These findings are uniquely predicted by a model in which managers learn information from their peers' valuation.

Suggested Citation

  • Thierry Foucault & Laurent Fresard, 2014. "Learning from peers' stock prices and corporate investment," Post-Print hal-00977071, HAL.
    • Handle: RePEc:hal:journl:hal-00977071
    DOI: 10.1016/j.jfineco.2013.11.006
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    References listed on IDEAS

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    More about this item

    Keywords

    Corporate investment; Managerial learning; Peers; Informed trading;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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