Investor Sentiment and Industrial Structure Upgrading: Based on the Perspectives of “Investment and Financing Effect” and “Signal Effect”

Abstract

In our main analyses, we use two hypotheses to examine the effect of investor sentiment on industrial upgrading. The first is the investment and financing hypothesis, which is synthesized by “equity financing approach” and “catering approach”. It is believed that the upsurge of industry sentiment promotes the financing and investment of listed companies, thereby promoting the industry to expand its production level. The second is the signal hypothesis. China’s stock market is inefficient in pricing and unreasonable in the system design. The high sentiment leads to the signal of “making rich” to economic participants, attracting capital, labor and other resources from the real economy into the industry. In this paper, we select the quarterly sample data of 3 027 listed companies and 78 industries in China from 2000 to 2016. All data come from the CSMAR database. We construct a “pure” industry sentiment（Sent）, and We select closed-end fund discount, turnover, Beta, P/E and excess return for principal component analysis to get an investor sentiment proxy. Then, we use the “residual” method to further separate out the parts affected by industrial policies, macroeconomic cycles, and industrial development from the sentiment proxy to get the industry sentiment. This paper firstly uses OLS regression to find that investor sentiment promotes industry expansion. We build short-selling weight as a tool variable for 2SLS regression. Further, we use macro-statistical data and company data to the robustness test. The results show that for emerging industries, investor sentiment not only has a positive impact on investment and financing, but also promotes the labor quality. However, for traditional manufacturing industry, investor sentiment has no impact on industrial expansion. Investor sentiment promotes industrial expansion through “investment and financing effect” and “signal effect”. The latter finds that investor sentiment can attract economic resources to agglomerate in emerging industries, promote more and higher quality investment, employees, enterprise units, inventory of finished products and total assets in emerging industries, and promote the rapid development of emerging industries. Our government could promote emerging industries through the design of the capital market system. Capital market regulators reduce the irrational characteristics of interfering with investors. The contributions of this paper are as follows: Firstly, it shows that investor sentiment in the stock market is one of the factors influencing macro-economy, which further enriches the research literature on “financial support for real economy”. Secondly, it also finds a new channel — “signal effect”. The high sentiment towards the emerging industry promotes the investment of various elements in the industry. Thirdly, it effectively expands the extension of the investor sentiment theory, and shows its “good” effect in macro-economy, that is investor sentiment promotes the agglomeration of economic resources to emerging industries.