Strategic Learning and Corporate Investment

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: 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