When Does the Market Matter? Stock Prices and the Investment of Equity-Dependent Firms

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ID: 297282
2003
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Abstract
We use a simple model to outline the conditions under which corporate investment is sensitive to nonfundamental movements in stock prices. The key prediction is that stock prices have a stronger impact on the investment of "equity-dependent" firms—firms that need external equity to finance marginal investments. Using an index of equity dependence based on the work of Kaplan and Zingales, we find support for this hypothesis. In particular, firms that rank in the top quintile of the KZ index have investment that is almost three times as sensitive to stock prices as firms in the bottom quintile.
Reference Key
openalex_W4239467316 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors M. Baker, Johannes Stein, Jeffrey Wurgler
Journal the quarterly journal of economics
Year 2003
DOI
10.1162/00335530360698478
URL
https://doi.org/10.1162/00335530360698478
Keywords Keywords not found

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