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Preference for Appearance over Substance and Corporate Investment
Author(s) -
Jung Boochun,
Lee WooJong,
Li Xiao,
Zhou Jing
Publication year - 2019
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/ajfs.12252
Subject(s) - preference , investment (military) , cash , substance use , business , economics , monetary economics , finance , psychology , microeconomics , political science , politics , law , clinical psychology
Preference for appearance over substance (AOS) refers to people's desire to look better than their actual appearance. In this paper, we explore the economic implications of AOS on corporate investment. Using novel country‐level proxies for AOS based on the prevalence of plastic surgery and cosmetic industry concentration, we first document that AOS is negatively (positively) associated with investment sensitivity to growth opportunities (cash flows). Second, external financing is less (more) affected by growth opportunities (cash flows) in stronger AOS countries than in weaker AOS countries. We conclude that people's preference for AOS leads firms to suboptimal investment.