We examine how stock market mispricing affectscorporate investment in an international setting. We find that investment ismore sensitive to stock prices for equity-dependent firms than for non-equity-dependentfirms in our international sample. Investment is also more sensitive to stockprices for firms located in countries with more developed capital markets (i.e.,lower costs of raising capital), higher share turnover (i.e., shortershareholder horizons), and higher R&D intensity (i.e., more opaque assets). More importantly, the positive relation between equitydependence and the sensitivity of investment to stock prices is more pronouncedfor firms located in these same countries. These findings are consistent withthe equity-financing hypothesis and the catering hypothesis on corporateinvestment proposed by Baker et al. (2003) and Polk and Sapienza (2009),respectively.
Equity-financing channel, Catering channel, Corporate investment
Accounting | Finance and Financial Management
Finance; Financial Intermediation and Information
8th Financial Markets and Corporate Governance conference, Wellington, April 20-21
Singapore Management University, SMU Economics and Statistics Working Paper Series, Paper No. 04-2018
City or Country
KUSNADI, Yuanto and WEI, K.C. John.
The equity-financing channel, the catering channel, and corporate investment: International evidence. (2017). 8th Financial Markets and Corporate Governance conference, Wellington, April 20-21. Research Collection School Of Accountancy.
Available at: http://ink.library.smu.edu.sg/soa_research/1667
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