Investor Sentiment, Corporate Investment, and Firm Performance

This paper focuses on the effects of investor sentiment on corporate investment and firm performance, using the panel data of Chinese listed companies from 2005 to 2008. The results reveal that investor sentiment has a statistically robust impact on both corporate investment and firm performance. The investor sentiment coefficient is positive (negative) and significant at the 1 percent level with firm investment (performance). It is more like that investor optimism leads to over investment, and then firm performance should worsen when investment made in investor optimistic states. Moreover, investor pessimism leads to less investment, and managers choose the most valuable projects to invest first, then investment in investor pessimistic states should lead to improved firm performance.