Feedback from Stock Prices to Cash Flows

Avanidhar Subrahmanyam · Sheridan D. Titman

272 citations0/0 files storedThe Journal of Finance

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Corporate Finance and Governance Financial Markets and Investment Strategies Financial Reporting and Valuation Research

Abstract

ABSTRACT Feedback from financial market prices to cash flows arises when a firm's nonfinancial stakeholders, for example, its customers, employees, and suppliers, make decisions that are contingent on the information revealed by the price. Complementarities across stakeholders result in cascades, wherein relatively small stock price moves trigger substantial changes in asset values. This paper analyzes the relation between such feedback effects and parameters such as the information cost, the volatility of existing projects, the risk aversion of liquidity suppliers, and the precision of managerial information.

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References

1936The General Theory of Employment, Interest and Money.1983Bank Runs, Deposit Insurance, and Liquidity 1985Continuous Auctions and Insider Trading 1986Large Shareholders and Corporate Control 1936The General Theory of Employment, Interest and Money, by John Maynard Keynes 1985Bid, ask and transaction prices in a specialist market with heterogeneously informed traders 1976Econometric policy evaluation: A critique 1985Dividend Policy under Asymmetric Information

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