Why does stock-market investor sentiment influence corporate investment?

Ding Du and Ou Hu ()
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Ou Hu: Youngstown State University

Review of Quantitative Finance and Accounting, 2020, vol. 54, issue 4, No 3, 1246 pages

Abstract: Abstract We examine the relationship between corporate investment and investor sentiment at the firm level with the predicted change in investor sentiment. Empirically, we find that there is a large predictable mean reversion component in investor sentiment, and that a predicted increase in investor sentiment, capturing an unwinding of past market sentiment, positively affects the investment and debt issuance of firms with lower credit ratings, but not their equity issuance. Our results suggest that the positive relationship between investor sentiment and corporate investment may be due to that corporate managers are also driven by investor sentiment.

Keywords: Stock-Market Investor Sentiment; Corporate investment; Net equity issuance; Net debt issuance (search for similar items in EconPapers)
JEL-codes: G02 G31 G32 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11156-019-00823-6

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