Feedback on Emerging Corporate Policies

We explore the role of market feedback in navigating emerging corporate policies on AI/green technologies. By assembling and analyzing a comprehensive sample of corporate disclosures in which managers discuss their forward-looking investment plans on AI/green technologies, we find that firms adjust such investments upward (downward) in response to favorable (unfavorable) market reactions to the corresponding 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. Such learning is absent for non-emerging-technology investment plans where managers have domain knowledge. Further, we find that following the market feedback on emerging corporate policies is rewarded by superior long-run operating and stock performance, especially when the feedback is unfavorable. We also find different learning patterns for AI and green technologies. Overall, our paper illustrates the usefulness of tapping the wisdom of the crowd when venturing into uncharted areas and sheds new light on what type of information managers learn from the stock market in different contexts of corporate policies.