Real Effects of Stock Underpricing

Harald Hau and Sandy Lai

No 8820, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper provides evidence for a causal effect of equity prices on corporate investment and employment. We use fire sales by distressed equity funds during the 2007-2009 financial crisis to identify substantial exogenous underpricing. Firms whose stocks are most underpriced have considerably lower investment and employment than industry peers not subject to any fire sale discount. The causal effect of underpricing on investment is found to be largely concentrated on the most financially constrained firms.

Keywords: Market inefficiency; Fire sales; Mutual funds; investment; Employment (search for similar items in EconPapers)
JEL-codes: G11 G14 G23 (search for similar items in EconPapers)
Date: 2012-02
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Journal Article: Real effects of stock underpricing (2013)
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