The real impact of stock market mispricing — Evidence from Australia |
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Institution: | 1. Department of Finance, Faculty of Economics and Commerce, University of Melbourne, Australia;2. Faculty of Business Administration, University of Macau, Macau, China;3. Department of Accounting and Finance, Faculty of Business and Economics, Monash University, Australia |
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Abstract: | Using a large panel of Australian firms, we investigate if mispricing in the stock market has an impact on firm-level investment. A significantly positive relation is documented between investment and the proxies for mispricing, suggesting that overpriced (underpriced) firms tend to overinvest (underinvest). Furthermore, we find that equity-dependent firms display a more pronounced sensitivity of investment to stock misvaluation than do nonequity-dependent firms. Taken together, our findings evidence that mispricing in Australian capital markets may have significant influence on the real economy, and the influence works though an equity-financing channel. |
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