The Real Impact of Stock Market Mispricing - Evidence from Australia
33 Pages Posted: 13 Oct 2005
Date Written: March 2006
Using a large panel of Australian firms, we investigate if mispricing in the stock market has an impact on firm-level investment. A significantly positive relation is documented between investment and the proxies for mispricing, suggesting that overpriced (underpriced) firms tend to overinvest (underinvest). Furthermore, we find that equity-dependent firms display a more pronounced sensitivity of investment to stock misvaluation than do nonequity-dependent firms. Taken together, our findings evidence that mispricing in Australian capital markets may have significant influence on the real economy, and the influence works though an equity-financing channel.
Keywords: Market Inefficiency, Equity Dependence, Investment, Australian Firms.
JEL Classification: G14, G31
Suggested Citation: Suggested Citation