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- Title
Corporate investment and stock market valuation.
- Authors
Liao, Shushu; Errico, Marco
- 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).
- Subjects
VALUATION of corporations; INVESTORS; INVESTMENT information; STOCK ownership; SENIOR leadership teams; VALUATION; CONTINGENT valuation
- Publication
Journal of Business Finance & Accounting, 2023, Vol 50, Issue 3/4, p795
- ISSN
0306-686X
- Publication type
Article
- DOI
10.1111/jbfa.12649