How do firms make decisions on investments in emerging technologies? We find that firms adjust AI/green investments in response to market reactions to announcements of such emerging-technology investment plans. Through a battery of tests, we show that this pattern is more likely due to active managerial learning from the market than alternative explanations such as a passive reflection of underlying fundamentals that drive both market reactions and corporate actions. Firms are more likely to act on feedback about emerging technologies than about other investments, particularly when market participants have more expertise in these areas and when firms face greater uncertainty.

How do financial frictions shape firms’ investment in intangible capital? We show that financial constraints distort firms’ input choices, leading to systematic underinvestment in intangible assets. Exploiting an investment subsidy in Portugal that lowered the cost of both physical and intangible capital while keeping their relative price unchanged, we find that treated firms reduced their capital-to-intangible ratio by 12 percent, with larger effects for financially constrained firms. The distribution of treatment effects declines sharply across percentiles - firms with higher initial capital-to-intangible ratios adjust the most - revealing the signature of a binding financial wedge. Going beyond average effects, we recover the entire cross-sectional distribution of wedges between the marginal rate of technical substitution and the price ratio. The recovered distribution corresponds to the least distorted economy consistent with the data, showing that only a small share of firms are unconstrained while roughly one-quarter face wedges exceeding twenty percent - providing a direct quantitative map of financial distortions in production.

We use a measure of financial constraint that distinguishes between a company’s emphasis on equity versus debt financing to show that equity-focused constrained firms endure larger declines in stock prices and implement deeper cuts in investments when faced with contractionary monetary policy shocks. Equity-focused constrained firms reduce equity issuance and are more reluctant to run down cash holdings in response to tighter monetary policy. Contractionary shocks reduce investor demand for the equity of constrained firms, increasing their cost of capital. Our findings suggest that equity frictions are the main determinant of the transmission of monetary policy to the corporate sector.