David Hirshleifer and Siew Hong Teoh from UC Irvine are giving two VGSF research seminars on "Stock Market Misvaluation and Corporate Investment" and "Driven to Distraction: Extraneous Events and Underreaction to Earnings News" on WEDNESDAY, June 27th, from 14:00 to 15:30 and 15:45 to 17:15 in SR 2 at the BWZ, Brünnerstrasse 72, 1210 Wien. See the VGSF webpage (Activities & Events --> Research Seminars) for a map of the location and the papers to download.
Please find the papers' abstracts below.
Best, Michael Halling
Abstract:"Stock Market Misvaluation and Corporate Investment" This paper explores whether and why misvaluation affects corporate investment by comparing tangible and intangible investments; and by using a price-based misevaluation proxy that filters out scale and earnings growth prospects. Capital, and especially R&D expenditures increase with overpricing; but only among overvalued firms. Misvaluation affects investment both directly (catering) and through equity issuance. The sensitivity of capital expenditures to misvaluation is stronger among financially constrained 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. Generally the equity channel reinforces direct catering, suggesting that the two are complementary. Overall, our evidence supports several implications of the misvaluation hypothesis for the tangible and intangible components of investment.
Abstract: "Driven to Distraction: Extraneous Events and Underreaction to Earnings News" Psychological evidence indicates that it is hard to process multiple stimuli and perform multiple tasks at the same time. This paper tests the investor distraction hypothesis, which holds that the arrival of extraneous news causes trading and market prices to react sluggishly to relevant news about a firm. Our test focuses on the competition for investor attention between a firm's earnings announcements and the earnings announcements of other firms. We find that the immediate stock price and volume reaction to a firm's earnings surprise is weaker, and post-earnings announcement drift is stronger, when a greater number of earnings announcements by other firms are made on the same day. Distracting news has a stronger effect on firms that receive positive than negative earnings surprises. Industry-unrelated news has a stronger distracting effect than related news. A trading strategy that exploits post-earnings announcement drift is unprofitable for announcements made on days with little competing news.