Technological Progress, Managerial Learning, and the Investment-to-Stock Price Sensitivity

Motivated by a real-options framework in which managers learn about the unobservable characteristics of new production technologies from their recently installed assets and their stock price, we show that the corporate investment-to-stock price sensitivity rises with the time since a firm last acquired new capacity. Notably, managers learn less from the stock price when they have better information, investors have worse information, or when alternative outside information sources exist. We shed light on the nature of information managers extract from markets by showing that firms with outdated capital learn more from the stock price when exogenously exposed to accelerated innovation.