Strategic Learning and Corporate Investment

Fisher College of Business Working Paper No. 2021-03-015

Charles A. Dice Center Working Paper No. 2021-15

77 Pages Posted: 15 Sep 2021 Last revised: 29 Jul 2022

See all articles by Paul H. Décaire

Paul H. Décaire

Arizona State University (ASU) - Finance Department

Michael D. Wittry

Ohio State University (OSU) - Department of Finance

Date Written: July 28, 2022

Abstract

We show that firms anticipate information spillover from peers' investment decisions and delay project exercise to learn from them. While this information improves project selection, the cost of waiting erodes these gains. To establish causality, we exploit local exogenous variation from the 1800s that shapes the number of peers that a firm can learn from today. The effect is most salient when information is scarce, costs of waiting are low, projects have low expected profitability, and the source information is more relevant. Finally, the anticipation of spillovers dampens aggregate investment, suggesting a role for this mechanism in macro-investment models.

Keywords: Real options, strategic interactions, learning, peer behavior, investment, historical data

JEL Classification: G30, G31, G41, D25, D82, D83, O13, Q15, R14

Suggested Citation

H. Décaire, Paul and Wittry, Michael D., Strategic Learning and Corporate Investment (July 28, 2022). Fisher College of Business Working Paper No. 2021-03-015, Charles A. Dice Center Working Paper No. 2021-15, Available at SSRN: https://ssrn.com/abstract=3923811 or http://dx.doi.org/10.2139/ssrn.3923811

Paul H. Décaire

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Michael D. Wittry (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

854 Fisher Hall
2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-3217 (Phone)

HOME PAGE: http://fisher.osu.edu/people/wittry.2

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