Premium
Stock Prices and the Supply of Information
Author(s) -
BRENNAN MICHAEL J.,
HUGHES PATRICIA J.
Publication year - 1991
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/j.1540-6261.1991.tb04639.x
Subject(s) - incentive , share price , business , stock (firearms) , private information retrieval , commission , stock price , monetary economics , order (exchange) , empirical evidence , restricted stock , financial economics , economics , finance , microeconomics , industrial organization , stock exchange , stock market , mechanical engineering , paleontology , philosophy , statistics , mathematics , epistemology , series (stratigraphy) , engineering , biology , horse
We develop a model in which the dependence of the brokerage commission rate on share price provides an incentive for brokers to produce research reports on firms with low share prices. Stock splits therefore affect the attention paid to a firm by investment analysts. Managers with favorable private information about their firms have an incentive to split their firm's shares in order to reveal the information to investors. We find empirical evidence that is consistent with the major new prediction of the model, that the number of analysts following a firm is inversely related to its share price.