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Feedback from Stock Prices to Cash Flows" (formerly called "Real Effects of Financial Market Trading)

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Author Info
Avanidhar Subrahmanyam (Anderson School of Management)
Sheridan Titman (Andeson School of Management)

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Abstract

This paper explores how fincial market prices directly inflnce a firm's cash flows. Feedback from financial market prices to crash flows arises when firms' non-financial stakeholders, e.g., its customers, employees, and suppliers, make decisions that are contingent on the information revealed by the price. When there are complementarities across these stakeholders, such feedback leads to cascades in which relatively small stock price moves trigger substantial changes in asset values. The paper analyzes the relation between such feedback effects and parameters such as the cost of information acquisition, the volume of liquidity trading, the volatility of the value of existing projects, the risk aversion of liquidity suppliers, and the precision of managerial information releases.

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File URL: http://repositories.cdlib.org/cgi/viewcontent.cgi?article=1116&context=anderson/fin
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Paper provided by Anderson Graduate School of Management, UCLA in its series University of California at Los Angeles, Anderson Graduate School of Management with number 1116.

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Date of creation: 18 Jul 1998
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Handle: RePEc:cdl:anderf:1116

Note: oai:cdlib1:anderson/fin-1116
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