Journal ArticleDOI
Price Informativeness and Investment Sensitivity to Stock Price
TLDR
The authors empirically examined the effect of price informativeness on the sensitivity of investment to stock price and found that price non-synchronicity and PIN measures are correlated with sensitivity to stock prices.Abstract:
Stock prices and real investments are highly correlated. Previous literature has offered two main explanations for this high correlation. The first explanation relies on price being informative about investment opportunities, the second one is based on financing constraints. In this paper we empirically examine the effect of price informativeness on the sensitivity of investment to stock price. Using price non-synchronicity and PIN as measures of price informativeness, we find that the degree of informativeness is positively correlated with the sensitivity of investment to stock price. Since, according to previous literature, these measures reflect private information, the result suggests that prices perform an active role, i.e., that managers learn from stock price when making investment decisions. This result is robust to the inclusion of various control variables (such as controls for managerial information) and to changes in specification.read more
Citations
More filters
Journal ArticleDOI
How Does Financing Impact Investment? The Role of Debt Covenants
TL;DR: In this paper, the authors identify a specific channel (debt covenants) and the corresponding mechanism (transfer of control rights) through which financing frictions impact corporate investment and show that capital investment declines sharply following a financial covenant violation, when creditors use the threat of accelerating the loan to intervene in management.
Posted Content
Governance Through Trading and Intervention: A Theory of Multiple Blockholders
TL;DR: In this paper, the authors show that, while such a structure generates free-rider problems that hinder intervention, the same co-ordination difficulties strengthen a second governance mechanism: disciplining the manager through trading.
Journal ArticleDOI
Corporate Governance, Idiosyncratic Risk, and Information Flow
TL;DR: This paper studied the relationship between corporate governance policy and idiosyncratic risk in stock returns and found that firms with fewer anti-takeover provisions display higher levels of idiosyncratic risks, trading activity, and more information about future earnings in stock prices.
Journal ArticleDOI
Short Selling and the Price Discovery Process
Ekkehart Boehmer,Julie Wu +1 more
TL;DR: In this article, the authors show that stock prices are more accurate when short sellers are more active, and that short sellers change their trading around extreme return events in a way that aids price discovery and reduces divergence from fundamental values.
Journal ArticleDOI
Manipulation and the Allocational Role of Prices
Itay Goldstein,Alexander Guembel +1 more
TL;DR: This article showed that trading without information is profitable only with sell orders, driving a wedge between the allocational implications of buyer and seller initiated speculation, and providing justification for restrictions on short sales.
References
More filters
Journal ArticleDOI
The Cross‐Section of Expected Stock Returns
Eugene F. Fama,Kenneth R. French +1 more
TL;DR: In this paper, Bhandari et al. found that the relationship between market/3 and average return is flat, even when 3 is the only explanatory variable, and when the tests allow for variation in 3 that is unrelated to size.
Journal ArticleDOI
Bid, ask and transaction prices in a specialist market with heterogeneously informed traders
TL;DR: The presence of traders with superior information leads to a positive bid-ask spread even when the specialist is risk-neutral and makes zero expected profits as discussed by the authors, and the expectation of the average spread squared times volume is bounded by a number that is independent of insider activity.
Posted Content
On the Impossibility of Informationally Efficient Markets
TL;DR: In this paper, the authors propose a model in which there is an equilibrium degree of disequilibrium: prices reflect the information of informed individuals (arbitrageurs) but only partially, so that those who expend resources to obtain information do receive compensation.
Journal ArticleDOI
A Simple Model of Capital Market Equilibrium with Incomplete Information
TL;DR: The model financial economics encompasses finance, micro-investment theory and much of the economics of uncertainty as mentioned in this paper, and it has had a direct and significant influence on practice, as is evident from its influence on other branches of economics including public finance, industrial organization and monetary theory.