Annual Conference

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Corporate Finance

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May 2022

Strategic Learning and Corporate Investment

We show that firms anticipate information spillover from peers’ investment decisions and delay project exercise to learn from them. While this information improves project selection, the cost of waiting offsets those gains. To establish causality, we exploit local exogenous variation from the 1800s that shapes the number of peers that a firm can learn from today. The effect is most salient when the cost of waiting is low, the project has low expected profitability, and the source information is more relevant. Finally, the anticipation of peers’ information spillover dampens aggregate investment, suggesting a role for this mechanism in macro-investment models.
Keywords: Real options, corporate investment, strategic interactions, peer learning, historical data
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