Abstract
In my dissertation, I aim to study how stock mispricing causally affects firm investment. I first examine the association between mispricing and investment by combining 98 return anomalies into a mispricing score and show that overvalued (undervalued) firms invest more (less). I further exploit academic publication of each anomaly as an exogenous shock to mispricing. Because of anomaly return decay, firms categorized as overvalued (undervalued) post-publication are less likely to truly be mispriced, and thus their investment reduces (increases). In addition, I provide evidence for a manager catering channel where managers whose compensation depends more on stock returns conduct more mispricing-induced investment. Finally, I show that firm investment induced by overvaluation leads to higher short-term stock returns but worse long-term performance. Overall, my findings suggest that stock mispricing can distort the real economy, and that academic publication can reduce such distortion.
Horstman, Dora Li (2023). Mispricing and Firm Investment. Doctoral dissertation, Texas A&M University. Available electronically from
https : / /hdl .handle .net /1969 .1 /199109.