Pooling wisdom: The impact of investors' private information transmission on corporate investment efficiency

This study examines whether and how private information transmitted by investors during interactions with managers affects corporate investment efficiency, with a particular focus on the role of managerial learning. Utilizing textual data from earnings communication conferences (ECCs) of Chinese listed companies, we find that the substantive information conveyed by investors helps mitigate firms' inefficient investment. Further analysis reveals that this mitigating effect is more pronounced when managers are highly competent or when firms place greater emphasis on investor protection, whereas it is weaker when CEOs are overconfident or when firms face more severe financing constraints. After conducting robustness checks on variable validity and sensitivity, and addressing potential endogeneity concerns, the main conclusions remain robust. Additional analyses suggest that managerial learning effects serve as the underlying mechanism through which the transmission of investors' private information influences investment efficiency, and such information transmission primarily suppresses inefficient investments by alleviating corporate underinvestment. This study underscores the informational role of investors in capital markets and provides critical insights for firms to optimize resource allocation.