Price Informativeness and Investment Sensitivity to Stock Price

Chen, Qi; Goldstein, Itay; Jiang, Wei

doi:10.1093/rfs/hhl024

Cited by 1,129 publications

(316 citation statements)

References 52 publications

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“…Similarly, Durnev et al (2004) find support for the prediction that more informative stock prices should enhance capital budgeting decisions. Chen et al (2007) show that stock price informativeness has a positive effect on the sensitivity of corporate investment to stock price.…”

Section: The Informational Role Of Financial Market Prices In Managermentioning

confidence: 92%

“…Nevertheless, in our empirical tests, we attempt to control for the level of private information that is held by managers. To do so, we follow Chen et al (2007) and Fresard (2012) and use the variable earnings' surprise (ERC) as a proxy of managerial private information. This is the average of the absolute market-adjusted returns generated by the four quarterly earnings announcements (from Compustat) that precede the current announcement of a quarterly dividend payment.…”

Section: Managerial Private Informationmentioning

confidence: 99%

“…In order to control for managerial private information and following the approach of Chen et al (2007) and Fresard (2012), we add the variable ERC and the interaction of this variable with Abnormal return to all our multivariate specifications. 14 Starting from the Multinomial Logit models of Table 6 15 , we observe a statistically significant negative (positive) effect of ERC on the probability of a dividend increase (decrease).…”

Section: Managerial Private Informationmentioning

confidence: 99%

“…More generally, our study contributes to the growing literature on the effects of secondary market stock prices on corporate financial decisions. Notable previous studies focus on investments (e.g., Wurgler, 2000;Durnev et al, 2004;Chen et al, 2007), CEO turnover (Defond and Hung, 2004), mergers and acquisitions (Luo, 2005), and cash savings (Fresard, 2012). 2 Our findings fill a gap in this literature by highlighting that dividend decisions are affected by information learned by managers from stock price changes.…”

Section: Introductionmentioning

confidence: 99%

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Dividend Changes and Stock Price Informativeness

Cesari

Huang

2014

SSRN Journal

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We investigate how private information in stock prices impacts quarterly dividend changes. We find that the positive relationship between past returns and current dividend changes strengthens when returns convey more private information. This finding is robust to the use of several price informativeness measures and the inclusion of managerial private information and stock overvaluation measures. Managers seem to learn new information from stock prices that they use when deciding on their dividend policy. This study highlights private information in stock prices as an important determinant of dividend policy and contributes to the literature on the real effects of financial markets.

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Section: The Informational Role Of Financial Market Prices In Managermentioning

confidence: 92%

Section: Managerial Private Informationmentioning

confidence: 99%

Section: Managerial Private Informationmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Dividend Changes and Stock Price Informativeness

Cesari

Huang

2014

SSRN Journal

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“…If managers decide on the level of investment, they will use all the available information that includes the information contained in stock prices and other information that managers have but that have not been incorporated in the prices yet. In this environment, Chen, Goldstein and Jiang (2006) find that investment will be more sensitive to stock prices, expressed through the Tobin's Q, when the price provides more information that is new to managers. …”

mentioning

confidence: 99%

Investment Decisions, Price-Earnings Ratios and Finance: Evidence from Firm-Level Data

Pietrovito

2009

SSRN Journal

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Economic theory suggests that firm's investment depend on future growth opportunities, measured for example by price-earnings ratios, but might be dampened by inefficient financial markets. This paper tests these hypotheses using an unbalanced panel of 9,000 listed firms from 41 developed and developing markets, from 1990 to 2006. The empirical results confirm that managers use the information contained in the price-earnings ratios to make investment decisions. Moreover, stock market development and the specialization of the financial system towards arm's length instead of bank financing has a positive effect on firms' investment decisions. Taken together, these results suggest that firms with higher growth opportunities accumulate more capital and that the stock market has a key role in channelling funds toward investment projects. IntroductionAssessing the impact of growth opportunities on investment decisions and therefore, on economic growth, has been the focus of several contributions in the corporate finance literature (Fazzari et al. 1988;Chen, Goldstein and Jiang, 2006) as well as in the finance and growth literature (Rajan and Zingales, 1998;Wurgler, 2000; Fisman and Love, 2004 a,b;Bekaert et al., 2007). Moreover, two natural questions about the impact of financial institutions on investment have been addressed in the finance and growth literature. The first question is whether more efficient financial systems are likely to encourage investment decisions (Wurgler, 2000;Love, 2003;Ndikumana, 2005;Bekaert et al., 2007), while the second question is whether the financial specialization of a country toward the stock market or the banking activity plays a key role in investment decisions (DemirgucKunt and Maksimovic, 2002;Ndikumana, 2005;Ergungor, 2008).Even though the literature on corporate finance has focused on different price-based measures of firms' growth opportunities, such as the Tobin's Q, there is no evidence on the sensitivity of investment to the price-earnings ratios. On the other hand, the literature on finance and growth documents the existence of a positive influence going from growth opportunities to investment and therefore, to growth, but only using aggregate industrylevel and country-level data. For instance, the contribution by Bekaert et al. (2007) uses data on the price-earnings ratios at industry-level to assesses the link between country's growth opportunities and aggregate investment growth. Similarly, almost all contributions documenting the existence of a causal relationship between financial development, financial structure and investment use aggregate data (Wurgler, 2000;Ndikumana, 2005;Bekaert et al., 2007).The present work aims to contribute to this literature by testing three main hypotheses through a model that uses firm-level panel data obtained from a high-quality source: the Worldscope Database. The first hypothesis is that firm's future growth opportunities, measured by the price-earnings ratios, positively influence investment decisions, even after controlli...

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Financing sustainability: How environmental disclosures shape bank lending decisions in emerging markets

Hui,

Li,

Elamer

2024

Corp Soc Responsibility Env

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As global awareness of environmental responsibilities intensifies, the significance of corporate Environmental information disclosure (EID) in decision‐making becomes increasingly prominent. However, its influence on bank lending decisions, especially in emerging markets like China, remains debated. Using 27,095 firm‐year observations between 2008 and 2020, this study examines the impact of both voluntary and mandatory EID on bank lending decisions. Findings indicate that banks incorporate EID into their lending decisions, offering favorable bank loan terms, both in terms of size and costs to firms with strong EID. To mitigate endogeneity concerns, we employ propensity score matching and a difference‐in‐difference methodology grounded in China's newly amended Environmental Protection Law, with consistent results across both tests. Our research identifies two possible economic mechanisms to explain why EID influences bank loan features: EID's potential to reduce firm‐specific risks and its alignment with local governmental incentives for green finance. Furthermore, our research suggests that voluntary EID, previously overlooked, proves more valuable than mandatory EID. We also find that the effectiveness of EID relies on banks' evaluations of the firm's sincerity and incentives behind the disclosure. Banks show a preference for voluntary EID from firms with minimal adverse selection concerns and mandatory EID from those highly motivated to disclose voluntarily. Moreover, we identify a synergy between EID and bank loans in fostering green innovation. This research not only bridges gaps in the existing bank financing literature but also offers insights into how EID can drive sustainable economic activities in developing economies.

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Price Informativeness and Investment Sensitivity to Stock Price

Cited by 1,129 publications

References 52 publications

Dividend Changes and Stock Price Informativeness

Dividend Changes and Stock Price Informativeness

Investment Decisions, Price-Earnings Ratios and Finance: Evidence from Firm-Level Data

Financing sustainability: How environmental disclosures shape bank lending decisions in emerging markets

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