paper stock market misvaluation and corporate investment

USC FBE FINANCE SEMINAR presented by David Hirshleifer FRIDAY, September 28, 2007 ABSTRACT: This paper explores whether and why misvaluation affects corporate investment by comparing tan

USC FBE FINANCE SEMINAR

presented by David Hirshleifer FRIDAY, September 28, 2007 10:30 am — 12:00 pm, Room: JKP-104

“Stock Market Misvaluation and Corporate Investment”

Ming Dong David Hirshleifer Siew Hong Teoh

ABSTRACT:

This paper explores whether and why misvaluation affects corporate investment

by comparing tangible and intangible investments; and by using a price-based

misvaluation proxy that filters out scale and earnings growth prospects Capital,

and especially R&D expenditures increase with overpricing; but only among

overvalued firms There is some indication that the sensitivity of capital

expenditures to misvaluation is stronger among equity-dependent firms; for

R&D this differential is strong and in the opposite direction We identify several

other factors that influence the strength of misvaluation effects on investment

Overall, our evidence supports several implications of the misvaluation

hypothesis for the tangible and intangible components of investment