 Do firms manage their share prices to mitigate investor short-termism?Ibrahim Bostan, Ji-Chai Lin and G. Mujtaba Mian Journal of Corporate Finance, 2024, vol. 84, issue C Abstract: Recent work documents a behavioral tendency of investors to expect excessively high upside potential for low-priced stocks. These expectations expose low-priced firms to greater pressure for short-term performance because their poor earnings news leads to greater investor disappointment and larger stock price declines. Therefore, we hypothesize that firms with a long-term focus, such as those that invest heavily in research and development (R&D), avoid low share prices. Consistent with our hypothesis, we find that firms with higher R&D capital decide on a higher filing price in their initial public offering, are less likely to undergo a stock split once listed, and upon a stock split, choose a higher post-split price. We establish a causal link between firms' R&D and share price management by exploiting the exogenous increases in R&D expenditures induced by the staggered introduction of state-level R&D tax credits in the US. Our study suggests that firms with large R&D capital target high share prices to shield their long-term investments from investor short-termism. Keywords: Investor short-termism; Share price; Nominal price illusion; Stock splits; R&d; Innovation; Stock market myopia (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:84:y:2024:i:c:s0929119923001542 DOI: 10.1016/j.jcorpfin.2023.102505 Access Statistics for this article Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter More articles in Journal of Corporate Finance from Elsevier |
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