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Cash Savings and Stock Price Informativeness

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  • Laurent Fresard

Abstract

This paper shows that managers use the information they learn from the stock market when they decide on corporate cash savings. In particular, corporate savings are much more sensitive to stock price when the price contains more information that is new to managers. Moreover, the significant effect of stock price informativeness on the savings-to-price sensitivity is not due to market mispricings and remains even after controlling for various sources of public and managerial private information. Overall, the results highlight a new channel through which the stock market affects corporate decisions, which suggests that the stock market is not a sideshow. Copyright 2012, Oxford University Press.

Suggested Citation

  • Laurent Fresard, 2012. "Cash Savings and Stock Price Informativeness," Review of Finance, European Finance Association, vol. 16(4), pages 985-1012.
  • Handle: RePEc:oup:revfin:v:16:y:2012:i:4:p:985-1012
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    File URL: http://hdl.handle.net/10.1093/rof/rfr004
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