Commitment to Overinvest and Price Informativeness ∗

@inproceedings{Guembel2005CommitmentTO,
  title={Commitment to Overinvest and Price Informativeness ∗},
  author={Alexander Guembel},
  year={2005}
}
A fundamental role of financial markets is to gather information on firms’ investment opportunities, and so help guide investment decisions in the real sector. We argue in this paper that firms’ overinvestment is sometimes necessary to induce speculators in financial markets to produce information. If firms always cancel planned investments following poor stock market response, the value of their shares will become insensitive to information on investment opportunities, so that speculators will… CONTINUE READING

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