Publication Type

Journal Article

Version

Preprint

Publication Date

12-2017

Abstract

We examine how stock market mispricing affects corporate investment in an internationalsetting. We find that investment is more sensitive to stock prices for equity-dependent firms thanfor non-equity-dependent firms in our international sample. Investment is also more sensitive tostock prices for firms located in countries with more developed capital markets (i.e., lower costsof raising capital), higher share turnover (i.e., shorter shareholder horizons), and higher R&Dintensity (i.e., more opaque assets). More importantly, the positive relation between equitydependence and the sensitivity of investment to stock prices is more pronounced for firmslocated in these same countries. These findings are consistent with the equity-financinghypothesis and the catering hypothesis on corporate investment proposed by Baker, Stein, andWurgler (2003) and Polk and Sapienza (2009), respectively.

Keywords

Equity-financing channel, Catering channel, Corporate investment

Discipline

Accounting | Finance and Financial Management

Research Areas

Corporate Reporting and Disclosure

Publication

Journal of Corporate Finance

Volume

47

First Page

236

Last Page

252

ISSN

0929-1199

Identifier

10.1016/j.jcorpfin.2017.09.021

Publisher

Elsevier

Copyright Owner and License

Authors

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

http://doi.org/10.1016/j.jcorpfin.2017.09.021

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