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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26344
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| Title: | Catering Through Nominal Share Prices |
| Authors: | Baker, Malcolm
Greenwood, Robin
Wurgler, Jeffrey |
| Issue Date: | 9-Jan-2007 |
| Series/Report no.: | FIN-07-026 |
| Abstract: | We propose and test a catering theory of nominal stock prices. The
theory predicts that when investors place higher valuations on low-price
firms, managers will maintain share prices at lower levels, and
vice-versa. Using measures of time-varying catering incentives based on
valuation ratios, split announcement effects, and future returns, we
find empirical support for the predictions in both time-series and
firm-level data. Given the strong cross-sectional relationship between
capitalization and nominal share price, an interpretation of the results
is that managers may be trying to categorize their firms as small firms
when investors favor small firms. |
| URI: | http://hdl.handle.net/2451/26344 |
| Appears in Collections: | Finance Working Papers
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