Purpose This study aims to examine the impact of stock mispricing on corporate investment decisions by taking the sample of non-financial firms listed on the Pakistan Stock Exchange during the period of 2008-2014. Design/methodology/approach To measure the mispricing, this study decomposes the market-to-book ratio into mispricing and growth components and measures corporate investment by capital expenditures. Fixed and random effect panel regression models are used to estimate the results. Findings Results of the study show that firms issue overvalued equity to finance the capital expenditures. Consistent with other studies, the relationship between stock mispricing and investment is more prominent in the financially constrained firms. In addition, cash flow investment sensitivity is higher in financially unconstrained firms. Practical implications Nonetheless, the results give important implications to the Pakistan Stock Market on how the mispricing enhances the welfare by relaxing the financial constraints and allowing the managers to make investment in profitable projects that otherwise go non-funded. These findings have interesting implications for further research in the literature of finance and also help in economic policy-making. Originality/value This study finds the impact of stock mispricing on corporate investment decisions by considering the role of market timing in the context of Pakistan.

Current study finds out the effect of stock mispricing, through catering effect, on corporate investment decisions by taking the sample of firms listed on Pakistan Stock Exchange during the period of 2007-2014. This study uses the methodology of Rhodes-Kropf et al (2005) to measure the stock mispricing who used market to book decomposition methodology to find out different components of mispricing and relate it to corporate investment activity that is measured by capital expenditures. Stockholder investment horizon is measured by share turnover ratio. Panel regression methodology is used to determine the relationship between stock mispricing and corporate investment decisions. Results of the study show that Firms with short horizon investors have significantly higher mispricing sensitivity than the firms with long horizon shareholder. Both sides of mispricing affect the investment but the impact of overvaluation is more than undervaluation because the firms issue shareholder equity more than stock repurchase.

PurposeThe purpose of this study is to finds out how investor attention plays the moderating role between the relation of information risk and COE by considering the effect of three different types of information risk, that is private information, lack of quality and transparent information.Design/methodology/approachFor that purpose, data is collected from all the non-financial firms listed on PSX from 2007 to 2019. Two-step system GMM dynamic panel estimators are applied to test the dynamic nature of the proposed model.FindingsThe findings of the study show that investor attention reduces these three information risks by increasing the stock liquidity and decreasing the crash risk which ultimately decreases the COE. Also, this study examined the role of investor attention between the relations of information risk and corporate investment in the dynamic panel model, where the two-step system generalized method of the moment has been applied. The finding of the study shows that investor attention stimulates the innovative investment by increasing investor confidence and decreasing the agency conflict.Originality/valueThis study contributes to the literature by providing the novel findings by considering the role of investor attention in reducing the effect of three different types of information risk, that is private information, less quality as well as less transparency of information and further their effect on the cost of equity.

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The objective of the current study is to investigate the impact of business strategies on the future crash risk of stock prices by considering the role of overvalued equity. This relationship is checked by taking non-financial firms from Pakistan Stock Exchange from 2008-2016. To evaluate the business strategy, composite strategy score is used which considers the firm's development and research costs to look for new products, sales ratio to determine the firm’s capacity to manufacture the product efficiently, standard deviation of employees, sales growth, marketing expense to sales ratio to locate the firms’ emphasis on marketing, and intensity of assets expenditures to capture the firms’ emphasis on production. Market to book decomposition method is used to calculate the equity overvaluation whereas the negative conditional skewness is used as a measure of crash risk. Random and fixed effect panel regression models are used to estimate the results. The results of the present study indicate that firms pursuing innovative strategies have a higher probability to face crash price risk. Outcomes of the study also confirm that such strategies also increase the likelihood of equity overvaluation which increases the risk of stock price crash in the future. The results of the current study are helpful for the investors in allocating the assets cautiously among companies with diverse strategies.