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When Does the Market Matter? Stock Prices and the Investment of Equity-Dependent Firms
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.
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Cites
Corporate financing and investment decisions when firms have information that investors do not have
Myers, S. C., & Majluf, N. S. (1984) · Journal of Financial Economics · doi:10.1016/0304-405x(84)90023-0 · Cited by 18,957
Financing Constraints and Corporate Investment
Fazzari, S. M., Hubbard, R. G., Petersen, B. C., Blinder, A. S., & Poterba, J. M. (1988) · Brookings Papers on Economic Activity · doi:10.2307/2534426 · Cited by 5,574
Cited by
Corporate social responsibility and access to finance
Cheng, B., Ioannou, I., & Serafeim, G. (2014) · Strategic Management Journal · doi:10.1002/smj.2131 · Cited by 3,896
How does financial reporting quality relate to investment efficiency?
Biddle, G. C., Hilary, G., & Verdi, R. S. (2009) · Journal of Accounting and Economics · doi:10.1016/j.jacceco.2009.09.001 · Cited by 3,214
Benmelech, E., & Frydman, C. (2015) · Journal of Financial Economics · doi:10.1016/j.jfineco.2014.04.009 · Cited by 734
A Review of Empirical Capital Structure Research and Directions for the Future
Graham, J. R., & Leary, M. T. (2011) · Annual Review of Financial Economics · doi:10.1146/annurev-financial-102710-144821 · Cited by 547
PÁSTOR, Ľ., & VERONESI, P. (2005) · The Journal of Finance · doi:10.1111/j.1540-6261.2005.00778.x · Cited by 420
Metadata
- Authors
- Baker, M., Stein, J. C., & Wurgler, J.
- Venue
- The Quarterly Journal of Economics
- Publisher
- Oxford University Press (OUP)
- Published
- 2003-08-01
- Volume
- 118
- Issue
- 3
- Pages
- 969-1005
- ISSN
- 0033-5533 (ISSN-L)
- 1531-4650
- OpenAlex
- W4239467316
- Cited by
- 1,138
- References
- 2
- FWCI
- 50.98
- Type
- journal article
- Language
- en
- Open access
- closed
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- Baker, M., Stein, J. C., & Wurgler, J. (2003). When Does the Market Matter? Stock Prices and the Investment of Equity-Dependent Firms. The Quarterly Journal of Economics. https://doi.org/10.1162/00335530360698478
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
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