Learning from Peers' Stock Prices and Corporate Investment

67 Pages Posted: 26 Jul 2012 Last revised: 27 Aug 2013

See all articles by Thierry Foucault

Thierry Foucault

HEC Paris - Finance Department

Laurent Frésard

University of Lugano; Swiss Finance Institute; University of Maryland - Robert H. Smith School of Business

Date Written: August 27, 2013

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 prices 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.

Keywords: Corporate Investment, Managerial Learning, Peers, Informed Trading

JEL Classification: G31, D21, D83

Suggested Citation

Foucault, Thierry and Frésard, Laurent, Learning from Peers' Stock Prices and Corporate Investment (August 27, 2013). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2117150 or http://dx.doi.org/10.2139/ssrn.2117150

Thierry Foucault

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
(33)139679569 (Phone)
(33)139677085 (Fax)

HOME PAGE: http://thierryfoucault.com/

Laurent Frésard (Contact Author)

University of Lugano ( email )

Via Giuseppe Buffi 13
Lugano, Ticino 6900
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
476
rank
55,185
Abstract Views
2,057
PlumX Metrics