Market Feedback, Investment Constraints, and Managerial Behavior

40 Pages Posted: 25 Oct 2007 Last revised: 30 Apr 2008

See all articles by Paula Hill

Paula Hill

University of Bristol

David Hillier

University of Strathclyde - Department of Accounting and Finance

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This paper examines the joint role of market feedback and investment constraints on managerial behavior. Using a sample of UK fixed price initial public offerings, we show that underperformance of share returns at the IPO significantly affects managerial investment decisions in the period after the offering. Firms with better investment opportunities and proportionately lower fixed (higher intangible) assets are more sensitive to negative market feedback. Over the longer term, the more responsive firms perform significantly better than their non-responsive counterparts. The findings contribute to the debate on the informational advantage of managers over investors and present strong evidence that the market, on aggregate, can provide a superior assessment of a firm's opportunities. Managers who are able to respond to negative market feedback can significantly improve their firm's future prospects.

Keywords: Market Feedback, Managerial Behavior, Investment, Financing, Book to Market, Initial Public Offerings

JEL Classification: G32

Suggested Citation

Hill, Paula and Hillier, David, Market Feedback, Investment Constraints, and Managerial Behavior. European Financial Management Journal, Forthcoming. Available at SSRN:

Paula Hill (Contact Author)

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

David Hillier

University of Strathclyde - Department of Accounting and Finance ( email )

Curran Building
100 Cathedral Street
Glasgow G4 0LN
United Kingdom
44 0141 330 4809 (Phone)
44 0141 330 4442 (Fax)

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