Waiting on a Friend: Strategic Learning and Corporate Investment

Paul H. Decaire and Michael D. Wittry
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Paul H. Decaire: Arizona State University
Michael D. Wittry: Ohio State University

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: Using detailed project-level data, we document a novel mechanism through which information externalities distort investment. Firms anticipate information spillover from peers’ investment decisions and delay project exercise to learn from their peers’ outcomes. To establish a causal interpretation of our results, we exploit local exogenous variation from the 1800s that shapes the number of peers that a firm can learn from today. The strategic learning incentive is most salient for projects with uncertain profitability, when peers’ underlying assets are similar, and in environments where peers are skilled. Finally, our results suggest that the anticipation of peer information dampens aggregate investment.

JEL-codes: D25 D82 D83 G30 G31 G41 O13 Q15 R14 (search for similar items in EconPapers)
Date: 2021-09
New Economics Papers: this item is included in nep-cfn, nep-ppm and nep-ure
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https://dx.doi.org/10.2139/ssrn.3923811

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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2021-15

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