Technological Progress, Managerial Learning, and the Investment-to-Stock Price Sensitivity

81 Pages Posted: 23 Sep 2022 Last revised: 2 May 2024

See all articles by Kevin Aretz

Kevin Aretz

Alliance Manchester Business School

Hassan Ilyas

Cornell University, Samuel Curtis Johnson Graduate School of Management, Department of Finance

Gaurav Kankanhalli

University of Pittsburgh - Katz Graduate School of Business

Date Written: May 2, 2024

Abstract

Motivated by a real-options framework in which managers learn about the unobservable characteristics of new production technologies from their installed assets and stock prices, we show that firms’ investment-to-stock price sensitivities rise with the time since they last acquired new capacity. Notably, managers of firms with outdated capital learn less from stock prices when they (investors) have more (less) private information or when alternative external information sources exist. We shed light on the nature of information managers extract from markets by showing that managers of firms with outdated capital learn more from stock prices when exogenously exposed to accelerated innovation.

Keywords: Managerial learning; Investment-to-stock price sensitivity; Capacity overhang; Technological progress; Innovation

JEL Classification: G31, G32, O33

Suggested Citation

Aretz, Kevin and Ilyas, Hassan and Kankanhalli, Gaurav, Technological Progress, Managerial Learning, and the Investment-to-Stock Price Sensitivity (May 2, 2024). Available at SSRN: https://ssrn.com/abstract=4214448 or http://dx.doi.org/10.2139/ssrn.4214448

Kevin Aretz (Contact Author)

Alliance Manchester Business School ( email )

Crawford House
Oxford Road
Manchester M13 9PL, Lancashire
United Kingdom
+44(0) 161 275 6368 (Phone)
+44(0) 161 275 4023 (Fax)

HOME PAGE: http://www.kevin-aretz.com

Hassan Ilyas

Cornell University, Samuel Curtis Johnson Graduate School of Management, Department of Finance ( email )

Ithaca, NY 14853
United States

HOME PAGE: http://www.hassan-ilyas.com

Gaurav Kankanhalli

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States

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