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Price Informativeness and Investment Sensitivity to Stock Price
Open accessAbstract
Stock prices and real investments are highly correlated. Previous literature has offered two main explanations for this high correlation. The first explanation relies on price being informative about investment opportunities, the second one is based on financing constraints. In this paper we empirically examine the effect of price informativeness on the sensitivity of investment to stock price. Using price non-synchronicity and PIN as measures of price informativeness, we find that the degree of informativeness is positively correlated with the sensitivity of investment to stock price. Since, according to previous literature, these measures reflect private information, the result suggests that prices perform an active role, i.e., that managers learn from stock price when making investment decisions. This result is robust to the inclusion of various control variables (such as controls for managerial information) and to changes in specification.
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Cites
Financing Constraints and Corporate Investment
Fazzari, S. M., Hubbard, R. G., Petersen, B. C., Blinder, A. S., & Poterba, J. M. (1988) · Brookings Papers on Economic Activity · doi:10.2307/2534426 · Cited by 5,574
On the impossibility of informationally efficient markets
Stiglitz, J. E., & Grossman, S. J. (1980) · Columbia University · doi:10.7916/d8765r99 · Cited by 3,645
Wolfers, J., & Zitzewitz, E. (2004) · Journal of Economic Perspectives · doi:10.1257/0895330041371321 · Cited by 889
Cited by
The effects of financial reporting and disclosure on corporate investment: A review
Roychowdhury, S., Shroff, N., & Verdi, R. S. (2019) · Journal of Accounting and Economics · doi:10.1016/j.jacceco.2019.101246 · Cited by 749
Stock price synchronicity, crash risk, and institutional investors
An, H., & Zhang, T. (2013) · Journal of Corporate Finance · doi:10.1016/j.jcorpfin.2013.01.001 · Cited by 720
Learning from peers' stock prices and corporate investment
Foucault, T., & Fresard, L. (2014) · Journal of Financial Economics · doi:10.1016/j.jfineco.2013.11.006 · Cited by 623
Insider Trading Laws and Stock Price Informativeness
Fernandes, N., & Ferreira, M. A. (2009) · Review of Financial Studies · doi:10.1093/rfs/hhn066 · Cited by 435
Stock liquidity and default risk
Brogaard, J., Li, D., & Xia, Y. (2017) · Journal of Financial Economics · doi:10.1016/j.jfineco.2017.03.003 · Cited by 426
Metadata
- Authors
- Chen, Q., Goldstein, I., & Jiang, W.
- Venue
- Review of Financial Studies
- Publisher
- Oxford University Press (OUP)
- Published
- 2006-07-06
- Volume
- 20
- Issue
- 3
- Pages
- 619-650
- ISSN
- 0893-9454 (ISSN-L)
- 1465-7368
- OpenAlex
- W3122551571
- Cited by
- 1,490
- References
- 3
- FWCI
- 128.60
- Type
- journal article
- Language
- en
- Open access
- green
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- Chen, Q., Goldstein, I., & Jiang, W. (2007). Price Informativeness and Investment Sensitivity to Stock Price. Review of Financial Studies. https://doi.org/10.1093/rfs/hhl024
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Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
