Managerial ability and investment to price sensitivity

This paper investigates how managerial ability influences their incentives to learn from stock prices, as measured by investment-q sensitivity. Our findings indicate a negative association between managerial ability and investment-q sensitivity. This relationship is more pronounced when firms' stock prices contain less investors' private information. However, we do not find similar results using non-price-based measures of investment opportunities. Collectively, the re-sults suggest that high-ability managers learn less information from stock prices when making investment decisions. To mitigate the endogeneity concern, we adopt chief executive officer (CEO) turnover as an exogenous shock to CEO ability and find consistent results. Additionally, we show that high-ability managers have more private information, suggesting that there is less information to be learned from stock prices.