Feedback on Emerging Corporate Policies

We explore the role of market feedback in facilitating emerging corporate policies on AI/green technologies. By assembling and analyzing a comprehensive sample of corporate press releases and disclosures in which managers discuss their emerging-technology-related investment plans, we find that firms adjust their AI/green investments upward (downward) in response to favorable (unfavorable) market reactions to such disclosures. This association is more likely due to managerial learning from the market than other alternative explanations, as it gets stronger when market reactions are unfavorable, when outside market participants are more knowledgeable about emerging technologies, and when managers have stronger incentives to promote investments in such fields. The documented investment adjustment is also absent when managers consider non[1]emerging-technology investment plans. Further, we find that such learning is rewarded by superior long-run operating and stock performance, especially when the feedback is unfavorable. Overall, our paper illustrates the usefulness of tapping the wisdom of the crowd when venturing into uncharted areas and sheds new light on how managerial learning from the market differs across various types of corporate investment.

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