Bounded Rationality, Stock Mispricing, and Corporate Investment
Zhaohui Zhu* and Wensheng Huang**,†
*School of Accounting, Zhejiang Gongshang University
18 Xuezheng Street, Xiasha, Hangzhou, China
**Hangzhou College of Commerce, Zhejiang Gongshang University
149 Jiaogong Road, Hangzhou, China
Although the effects of agents’ bounded rationality and stock mispricing on corporate investment is becoming a frontier research field in corporate finance, little research has been devoted to different channels of managers catering to agents’ bounded rationality and stock mispricing. With a sample of 2003–2010 Chinese listed companies, we investigate how firms cater to stock mispricing in their investment decision-making. The empirical study results support the view that managers do cater to investors’ perceived bias for investment in intangible assets and/or fixed assets and that firms’ financial constraints, market characteristics, and the myopia of investors are important factors in catering for such investment. Moreover, fixed asset investment may be a more important channel than intangible asset investment for managers when catering to stock mispricing.
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