Real Effects of Stock Underpricing

Hau, Harald; Lai, Sandy

doi:10.2139/ssrn.1965957

Download This Paper

Open PDF in Browser

Add Paper to My Library

Real Effects of Stock Underpricing

Journal of Financial Economics (JFE), (Forthcoming)

Swiss Finance Institute Research Paper No. 11-59

EFA 2012 Copenhagen Meetings Paper

51 Pages Posted: 29 Nov 2011 Last revised: 6 Feb 2014

See all articles by Harald Hau

Harald Hau

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Sandy Lai

University of Hong Kong

There are 2 versions of this paper

Date Written: October 5, 2012

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.

Keywords: market inefficiency, fire sales, mutual funds, investment, employment

JEL Classification: G11, G14, G23

Suggested Citation: Suggested Citation

Hau, Harald and Lai, Sandy, Real Effects of Stock Underpricing (October 5, 2012). Journal of Financial Economics (JFE), (Forthcoming) , Swiss Finance Institute Research Paper No. 11-59, EFA 2012 Copenhagen Meetings Paper , Available at SSRN: https://ssrn.com/abstract=1965957 or http://dx.doi.org/10.2139/ssrn.1965957