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Corporate Investments and Learning

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  • Nathalie Moyen
  • Stefan Platikanov

Abstract

Using age as a proxy for learning within a firm, we show that the investments of firms with younger projects react more to profit realizations. With time, firms learn about their long-term quality, and their investment decisions become less influenced by the random shocks they receive. We also show that the learning process depends on the volatility of the economic environment. In more volatile industries, firms observe more noise and less signal from profit realizations. Their investments are therefore less influenced by profits. These new empirical results are consistent with a Tobin's q framework augmented with Bayesian learning. Copyright 2013, Oxford University Press.

Suggested Citation

  • Nathalie Moyen & Stefan Platikanov, 2013. "Corporate Investments and Learning," Review of Finance, European Finance Association, vol. 17(4), pages 1437-1488.
    • Handle: RePEc:oup:revfin:v:17:y:2013:i:4:p:1437-1488
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    File URL: http://hdl.handle.net/10.1093/rof/rfs029
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    Cited by:

    1. Chen, Te-Feng & Kwok, Wing Chun & Wong, George, 2021. "Does the q theory of investment work well in China?," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    2. Vithessonthi, Chaiporn & Schwaninger, Markus & Müller, Matthias O., 2017. "Monetary policy, bank lending and corporate investment," International Review of Financial Analysis, Elsevier, vol. 50(C), pages 129-142.
    3. Vithessonthi, Chaiporn & Schwaninger, Markus & Müller, Matthias O., 2017. "Monetary policy, bank lending and corporate investment," International Review of Financial Analysis, Elsevier, vol. 50(C), pages 129-142.
    4. Vithessonthi, Chaiporn & Tongurai, Jittima, 2015. "The effect of firm size on the leverage–performance relationship during the financial crisis of 2007–2009," Journal of Multinational Financial Management, Elsevier, vol. 29(C), pages 1-29.
    5. Christopher A Hennessy & Boris Radnaev, 2018. "Learning and Leverage Cycles in General Equilibrium: Theory and Evidence [How sensitive is investment to cash flow when financing is frictionless?]," Review of Finance, European Finance Association, vol. 22(1), pages 311-335.
    6. Tongurai, Jittima & Vithessonthi, Chaiporn, 2022. "Learning, foreign operations and operating performance," Global Finance Journal, Elsevier, vol. 52(C).
    7. Yang, Zhonghai & Lu, Yang & Tan, Wenhao, 2021. "Monetary policy tightening, accounting information comparability, and underinvestment: Evidence from China," Economic Analysis and Policy, Elsevier, vol. 70(C), pages 123-147.

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