Information, Competition, and Investment Sensitivity to Peer Stock Prices

70 Pages Posted: 18 Aug 2013

See all articles by Arzu Ozoguz

Arzu Ozoguz

Southern Methodist University (SMU) - Finance Department; Rice University

Michael J. Rebello

University of Texas at Dallas - Naveen Jindal School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: July 2, 2013

Abstract

We show empirically that firms' investment responds to innovations in stock prices of peer firms. This response is stronger and more positive when peer firms have greater informed trading and more informative prices. We also find higher competition, faster growth, greater correlation in fundamentals, and higher capital intensity within the peer group all increase this sensitivity. Our results suggest that managers rely on information in peer firms' prices in making capital allocation decisions, especially when, because of a challenging or rapidly changing operating environment, they face higher costs of inaction and higher rewards from a strong and prompt response.

JEL Classification: G31

Suggested Citation

Ozoguz, Arzu and Rebello, Michael J., Information, Competition, and Investment Sensitivity to Peer Stock Prices (July 2, 2013). Available at SSRN: https://ssrn.com/abstract=2311344 or http://dx.doi.org/10.2139/ssrn.2311344

Arzu Ozoguz (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States

Rice University ( email )

6100 Main St
Houston, TX Texas 77005
United States
9193455747 (Phone)

Michael J. Rebello

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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