Year: 2022
Type: article
Abstract: We study the driving forces behind the positive association observed between corporate investment and stock market valuation, and how they interact with managerial equity incentives and informativeness of investment. We build a dynamic model where managers use investment choices to influence investors' opinions about firms' future prospects and increase the market valuation. The incentives to manipulate the valuation processes increase with managerial equity incentives and informativeness of investment. Our empirical findings support the model's predictions that the tendency of using investment to boost market valuation is stronger when managerial stock ownership is high or when earnings quality is low (i.e., there is strong reliance on investment for information).
DOI: 10.1111/jbfa.12649
Authors: Shushu Liao, Marco Errico
Institutions: Kühne Logistics University, Esade, Universitat Ramon Llull
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $3,350
OpenAlex ID: W4291964294