Articlebronze2011

Cash Savings and Stock Price Informativeness

101 citations0/0 files storedEuropean Finance Review

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Corporate Finance and Governance Financial Markets and Investment Strategies Financial Analysis and Corporate Governance

Abstract

Abstract This paper shows that managers use the information they learn from the stock market when they decide on corporate cash savings. In particular, corporate savings are much more sensitive to stock price when the price contains more information that is new to managers. Moreover, the significant effect of stock price informativeness on the savings-to-price sensitivity is not due to market mispricings and remains even after controlling for various sources of public and managerial private information. Overall, the results highlight a new channel through which the stock market affects corporate decisions, which suggests that the stock market is not a sideshow.

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References

1973Risk, Return, and Equilibrium: Empirical Tests 2008Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches 2002Illiquidity and stock returns: cross-section and time-series effects 1985Continuous Auctions and Insider Trading 1996The Use of Knowledge in Society 1980On the Impossibility of Informationally Efficient Markets 1999The determinants and implications of corporate cash holdings 2002Market Timing and Capital Structure

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