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Market feedback, investment constraints and managerial behavior

Hill, P. and Hillier, D.J. (2009) Market feedback, investment constraints and managerial behavior. European Financial Management, 15 (3). pp. 584-605. ISSN 1354-7798

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Abstract

This paper examines the joint role of market feedback and investment constraints on managerial behavior. Using a sample of UK fixed price initial public offerings, we show that underperformance of share returns at the IPO significantly affects managerial investment decisions in the period after the offering. Firms with better investment opportunities and proportionately lower fixed (higher intangible) assets are more sensitive to negative market feedback. Over the longer term, the more responsive firms perform significantly better than their non-responsive counterparts. The findings contribute to the debate on the informational advantage of managers over investors and present strong evidence that the market, on aggregate, can provide a superior assessment of a firm's opportunities. Managers who are able to respond to negative market feedback can significantly improve their firm's future prospects.

Item type: Article
ID code: 28371
Keywords: market feedback, managerial behavior, investment, financing, book to market, initial public offerings, Finance, Economics, Econometrics and Finance(all), Accounting
Subjects: Social Sciences > Finance
Department: Strathclyde Business School > Accounting and Finance
Related URLs:
    Depositing user: Miss Donna McDougall
    Date Deposited: 19 Oct 2010 10:42
    Last modified: 05 Sep 2014 05:38
    URI: http://strathprints.strath.ac.uk/id/eprint/28371

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