Les Cahiers de Recherche - HEC Paris
Ripple Effects of Noise on Corporate Investment
(), Olivier Dessaint, Laurent Frésard and Adrien Matray
Abstract: Firms reduce investment in response to non-fundamental
drops in the stock price of their product-market peers, as predicted by a
model in which managers rely on stock prices as a source of information but
cannot perfectly filter out noise in prices. The model also implies the
response of investment to noise in peers' stock prices should be stronger
when these prices are more informative, and weaker when managers are better
informed. We find support for these predictions. Overall, our results
highlight a new channel through which non-fundamental shocks to the stock
prices of some firms influence real decisions of other firms.
Keywords: corporate; investment; (follow links to similar papers)
57 pages, December 23, 2015
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