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Market feedback, investment constraints, and managerial behavior

Research output: Contribution to journalArticle

Original languageEnglish
Pages (from-to)584 - 605
JournalEuropean Financial Management
Journal issue3
Early online date7 Dec 2007
StatePublished - Jun 2009


This paper examines the joint role of market feedback and investment constraints on managerial behavior. Using a sample of UK fixed price initial public offerings, we show that underperformance of share returns at the IPO significantly affects managerial investment decisions in the period after the offering. Firms with better investment opportunities and proportionately lower fixed (higher intangible) assets are more sensitive to negative market feedback. Over the longer term, the more responsive firms perform significantly better than their non-responsive counterparts. The findings contribute to the debate on the informational advantage of managers over investors and present strong evidence that the market, on aggregate, can provide a superior assessment of a firm's opportunities. Managers who are able to respond to negative market feedback can significantly improve their firm's future prospects.

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