Working Paper: NBER ID: w21260
Authors: Nicola Gennaioli; Yueran Ma; Andrei Shleifer
Abstract: Using micro data from Duke University quarterly survey of Chief Financial Officers, we show that corporate investment plans as well as actual investment are well explained by CFOs’ expectations of earnings growth. The information in expectations data is not subsumed by traditional variables, such as Tobin’s Q or discount rates. We also show that errors in CFO expectations of earnings growth are predictable from past earnings and other data, pointing to extrapolative structure of expectations and suggesting that expectations may not be rational. This evidence, like earlier findings in finance, points to the usefulness of data on actual expectations for understanding economic behavior.
Keywords: Expectations; Investment; CFO Survey
JEL Codes: E03; E22; E32; G3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| CFO expectations of earnings growth (G31) | planned corporate investments (G31) |
| CFO expectations of earnings growth (G31) | actual corporate investments (G30) |
| CFO expectations of earnings growth (G31) | expectations data explanatory power beyond traditional financial metrics (C51) |
| past performance data (Y10) | CFO expectations of earnings growth (G31) |
| CFO expectations errors (G41) | past performance data (Y10) |