Learning from Other Firms' Investments: Corporate Governance and Firm Entry

28 Pages Posted: 4 Dec 2013 Last revised: 19 Mar 2015

See all articles by Konrad Raff

Konrad Raff

Norwegian School of Economics (NHH)

Patrick Verwijmeren

Erasmus University Rotterdam (EUR)

Date Written: March 18, 2015


We propose that potential entrants learn about industry conditions from observing the investment behavior of established firms. Strong corporate governance at established firms facilitates learning spillovers. Empirically, we find that industries experience more entry if incumbent firms invest more. The sensitivity of entry to investment activity is much higher in industries with strong corporate governance. Moreover, consistent with the learning hypothesis, the effects are strongest for industries with less informative stock prices and when exposure to industry-level uncertainty is high.

Keywords: Corporate Governance, Information Spillovers, Firm Entry, Product Market Competition, Corporate Investment.

JEL Classification: G31, D83, L10

Suggested Citation

Raff, Konrad and Verwijmeren, Patrick, Learning from Other Firms' Investments: Corporate Governance and Firm Entry (March 18, 2015). Available at SSRN: https://ssrn.com/abstract=2362646 or http://dx.doi.org/10.2139/ssrn.2362646

Konrad Raff

Norwegian School of Economics (NHH) ( email )

Department of Finance
Helleveien 30
Bergen, 5045

HOME PAGE: http://sites.google.com/site/raffkonrad/

Patrick Verwijmeren (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA

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