Do Lenders Learn from Peer Firm Valuations?
63 Pages Posted: 9 Mar 2021 Last revised: 14 Feb 2023
Date Written: February 14, 2023
Abstract
A firm’s investment responds to the stock valuations of peer firms. For neighboring peers, this relation is stronger among financially constrained firms, robust to controlling for regional investment, and is driven by a more speculative component of valuations – the same is not true for industry peers. These geographical findings are difficult to reconcile with existing theories that link firm valuations to managerial learning. Instead, our findings suggest that lenders learn from peer firm valuations and allocate more credit to regions with higher stock valuations. Consistent with this explanation, financially constrained firms issue more debt and receive lower loan spreads when neighboring peer firms have higher valuations.
Keywords: Real Effects of Financial Markets, Corporate Investment
JEL Classification: G31
Suggested Citation: Suggested Citation