Conclusions
We assume that managers learn about the existence of ICW before other stakeholders do. They decide to cut corporate investments in response. The market observes the decision and infers a lower firm value. This causes the stock price to drop even before the ICW is disclosed. Consistent with this ICW-investment hypothesis, we find that on average ICW firms do reduce investments in the year of disclosure and after. Announcements for many of these reductions are found in the media in the year before disclosure. During this year, the stocks of the ICW firms that subsequently reduce investment underperform those that do not reduce investment. These results are less severe for ICW firms with credit rating.
