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
There are 2 versions of this paper
Real Effects of Stock Underpricing
Real Effects of Stock Underpricing
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
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