Waiting on a Friend: Strategic Learning and Corporate Investment
Charles A. Dice Center Working Paper No. 2021-15
74 Pages Posted: 15 Sep 2021
Date Written: September 14, 2021
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: Suggested Citation