Waiting on a Friend: Strategic Learning and Corporate Investment

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

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

74 Pages Posted: 15 Sep 2021

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: September 14, 2021

Abstract

Using detailed project-level data, we document a novel mechanism through which information externalities distort investment. Firms anticipate information spillover from peers’ investment decisions and delay project exercise to learn from their peers’ outcomes. To establish a causal interpretation of our results, we exploit local exogenous variation from the 1800s that shapes the number of peers that a firm can learn from today. The strategic learning incentive is most salient for projects with uncertain profitability, when peers’ underlying assets are similar, and in environments where peers are skilled. Finally, our results suggest that the anticipation of peer information dampens aggregate investment.

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., Waiting on a Friend: Strategic Learning and Corporate Investment (September 14, 2021). 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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