Cookies?
Library Header Image
LSE Research Online LSE Library Services

The stock market and corporate investment: a test of catering theory

Polk, Christopher and Sapienza, Paola (2009) The stock market and corporate investment: a test of catering theory. Review of Financial Studies, 22 (1). pp. 187-217. ISSN 0893-9454

Full text not available from this repository.

Identification Number: 10.1093/rfs/hhn030

Abstract

We test a catering theory describing how stock market mispricing might influence individual firms' investment decisions. We use discretionary accruals as our proxy for mispricing. We find a positive relation between abnormal investment and discretionary accruals; that abnormal investment is more sensitive to discretionary accruals for firms with higher R&D intensity (opaque firms) or share turnover (firms with shorter shareholder horizons); that firms with high abnormal investment subsequently have low stock returns; and that the larger the relative price premium, the stronger the abnormal return predictability. We show that patterns in abnormal returns are stronger for firms with higher R&D intensity or share turnover.

Item Type: Article
Official URL: http://rfs.oxfordjournals.org/
Additional Information: © 2008 The Authors
Subjects: H Social Sciences > HG Finance
Sets: Departments > Finance
Date Deposited: 08 Feb 2011 12:20
Last Modified: 08 Feb 2011 12:21
URI: http://eprints.lse.ac.uk/id/eprint/32275

Actions (login required)

View Item View Item