Feedback from Stock Prices to Cash Flowsâ€ (formerly called â€œReal Effects of Financial Market Trading)
AbstractThis paper explores how fincial market prices directly inflnce a firmâ€™s cash flows. Feedback from financial market prices to crash flows arises when firmsâ€™ 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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Bibliographic InfoPaper provided by Anderson Graduate School of Management, UCLA in its series University of California at Los Angeles, Anderson Graduate School of Management with number qt2hw9m972.
Date of creation: 18 Jul 1998
Date of revision:
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