Do Lenders Learn from Peer Firm Valuations?

63 Pages Posted: 9 Mar 2021 Last revised: 14 Feb 2023

See all articles by Brad Cannon

Brad Cannon

Binghamton University

John Lynch

Hofstra University - Department of Finance

Joshua Thornton

Baylor University; University of California Irvine

Date Written: February 14, 2023


A firm’s investment responds to the stock valuations of peer firms. For neighboring peers, this relation is stronger among financially constrained firms, robust to controlling for regional investment, and is driven by a more speculative component of valuations – the same is not true for industry peers. These geographical findings are difficult to reconcile with existing theories that link firm valuations to managerial learning. Instead, our findings suggest that lenders learn from peer firm valuations and allocate more credit to regions with higher stock valuations. Consistent with this explanation, financially constrained firms issue more debt and receive lower loan spreads when neighboring peer firms have higher valuations.

Keywords: Real Effects of Financial Markets, Corporate Investment

JEL Classification: G31

Suggested Citation

Cannon, Brad and Lynch, John and Thornton, Joshua, Do Lenders Learn from Peer Firm Valuations? (February 14, 2023). Available at SSRN: or

Brad Cannon (Contact Author)

Binghamton University ( email )

United States
8015899901 (Phone)

John Lynch

Hofstra University - Department of Finance ( email )

Hempstead, NY 11550
United States

HOME PAGE: http://

Joshua Thornton

Baylor University

P.O. Box 98004
Waco, TX 76798-8004
United States

HOME PAGE: http://

University of California Irvine ( email )

Paul Merage School of Business
4293 Pereira Dr
Irvine, CA California 92697
United States

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