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

73 Pages Posted: 23 Sep 2022 Last revised: 11 Oct 2022

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: October 11, 2022

Abstract

Motivated by a real-options framework in which managers learn about the unobservable characteristics of new production technologies from their recently installed assets and their stock price, we show that the corporate investment-to-stock price sensitivity rises with the time since a firm last acquired new capacity. Notably, managers learn less from the stock price when they have better information, investors have worse information, or when alternative outside information sources exist. We shed light on the nature of information managers extract from markets by showing that firms with outdated capital learn more from the stock price when exogenously exposed to accelerated innovation.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 (October 11, 2022). 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
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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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