Ripple Effects of Noise on Corporate Investment

Thomas Astebro, Florian Hoos, Olivier Dessaint, Thierry Foucault, Laurent Frrsard and Adrien Matray
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Thomas Astebro: Joseph L. Rotman School of Management - University of Toronto
Florian Hoos: GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique
Olivier Dessaint: GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique
Adrien Matray: GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique

Working Papers from HAL

Abstract: Firms significantly reduce their investment in response to non-fundamental drops in the stock price of their product-market peers. We argue that this result arises because of managers' limited ability to filter out the noise in stock prices when using them as signals about their investment opportunities. The resulting losses of capital investment and shareholders' wealth are economically large, and affect even firms that are not facing severe financing constraints or agency problems. Our findings offer a novel perspective on how stock market inefficiencies can affect the real economy, even in the absence of financing or agency frictions.

Date: 2015-12-26
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Related works:
Working Paper: Ripple Effects of Noise on Corporate Investment (2016)
Working Paper: Ripple Effects of Noise on Corporate Investment (2015)
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