Learning from peersʹ stock prices and corporate investment

Peersʹ valuation matters for firmsʹ investment: a one standard deviation increase in peersʹ valuation is associated with a 5.9% increase in corporate investment. This association is stronger when a firmʹs stock price informativeness is lower or when its managers appear less informed. Also, the sensitivity of a firmʹs investment to its stock price is lower when its peersʹ stock price informativeness is higher or when demands for its products and its peersʹ products are more correlated. Furthermore, the sensitivity of firmsʹ investment to their peersʹ valuation drops significantly after going public. These findings are uniquely predicted by a model in which managers learn information from their peersʹ valuation.