Information, Competition, and Investment Sensitivity to Peer Stock Prices
We examine the response of investment to peers' stock prices. While the response to average peer-Q is typically positive, the response to prices of peer firms that are more threatening and those of industry leaders is reliably negative. The responses are more strongly negative when the prices contain more firm-specific information. We also show that different measures of peer price informativeness can capture either positive or negative investment signals. Thus, the response to peer prices varies with industry competition and whether the prices reflect firm-specific or industry information, clouding the traditional interpretation of variation in the responses to peers prices.
Corporate Investment, Industrial Organization, Managerial learning, Peers
SMU Cox: Finance (Topic)