Preference for Appearance over Substance and Corporate Investment

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.