The equity-financing channel, the catering channel, and corporate investment: International evidence

Yuanto Kusnadi, K. C.John Wei

Research output: Journal article publicationJournal articleAcademic researchpeer-review

3 Citations (Scopus)

Abstract

We examine how equity mispricing affects corporate investment in an international setting. We find that investment is more sensitive to stock prices for equity-dependent firms than for non-equity-dependent firms in our international sample. Investment is also more sensitive to stock prices for firms located in countries with more developed capital markets (i.e., lower costs of raising capital), higher share turnover (i.e., shorter shareholder horizons), and higher R&D intensity (i.e., more opaque assets). More importantly, the positive relation between equity dependence and the sensitivity of investment to stock prices is more pronounced for firms located in these same countries. These findings are consistent with the equity-financing hypothesis and the catering hypothesis on corporate investment proposed by Baker et al. (2003) and Polk and Sapienza (2009), respectively.

Original languageEnglish
Pages (from-to)236-252
Number of pages17
JournalJournal of Corporate Finance
Volume47
DOIs
Publication statusPublished - Dec 2017

Keywords

  • Catering channel
  • Corporate investment
  • Equity-financing channel

ASJC Scopus subject areas

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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