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Real Effects of Stock Underpricing

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  • Hau, Harald
  • Lai, Sandy

Abstract

This paper provides evidence for a causal effect of equity prices on corporate investment and employment. We use fire sales by distressed equity funds during the 2007-2009 financial crisis to identify substantial exogenous underpricing. Firms whose stocks are most underpriced have considerably lower investment and employment than industry peers not subject to any fire sale discount. The causal effect of underpricing on investment is found to be largely concentrated on the most financially constrained firms.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8820.

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Date of creation: Feb 2012
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Handle: RePEc:cpr:ceprdp:8820

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Keywords: employment; fire sales; investment; market inefficiency; mutual funds;

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Cited by:
  1. Pengjie Gao & Dong Lou, . "Cross-Market Timing in Security Issuance," FMG Discussion Papers dp718, Financial Markets Group.

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