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Feedback from Stock Prices to Cash Flows
Author(s) -
Subrahmanyam Avanidhar,
Titman Sheridan
Publication year - 2001
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/0022-1082.00409
Subject(s) - volatility (finance) , cash flow , market liquidity , business , stock (firearms) , monetary economics , economics , cash , financial economics , microeconomics , finance , mechanical engineering , engineering
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.