A&F Research Seminar

06 April 2022, 14.00-15.00, NUBS 2.14/Zoom

Guest Speaker: Prof Kevin Aretz

Title: Technological Progress, Managerial Learning, and the Investment-to-Stock Price Sensitivity

Abstract:

We develop a real options investment model in which managers learn about the unobservable characteristics of new production technologies from their most recently installed production capacity and their firm’s stock price. Critically, the model predicts that managers rely more on the stock price the longer ago the firm last installed capacity. In accordance, the corporate investment-to-stock price sensitivity rises with past capacity overhang, a proxy for the time since a firm last acquired capacity. The results hold under various investment, employment, and Tobin’s Q proxies and controlling for the private information in stock prices and firm financial constraints. Notably, the disinvestment-to-stock price sensitivity falls with capacity overhang, suggesting managers also learn about liquidation values from stock prices. We shed light on the nature of information managers extract from markets by providing causal evidence that the managerial learning dynamics we uncover are more pronounced for firms exposed to greater technological progress.

Please register your attendance using the following link: https://forms.ncl.ac.uk/view.php?id=12785292

Zoom link: https://newcastleuniversity.zoom.us/j/81330825487