When Does the Market Matter? Stock Prices and the Investment of Equity-Dependent Firms

Malcolm Baker, Jeremy C. Stein and Jeffrey Wurgler

The Quarterly Journal of Economics, 2003, vol. 118, issue 3, 969-1005

Abstract: We use a simple model to outline the conditions under which corporate investment is sensitive to nonfundamental movements in stock prices. The key prediction is that stock prices have a stronger impact on the investment of "equity-dependent" firms—firms that need external equity to finance marginal investments. Using an index of equity dependence based on the work of Kaplan and Zingales, we find support for this hypothesis. In particular, firms that rank in the top quintile of the KZ index have investment that is almost three times as sensitive to stock prices as firms in the bottom quintile.

Date: 2003
References: Add references at CitEc
Citations: View citations in EconPapers (554)

Downloads: (external link)
http://hdl.handle.net/10.1162/00335530360698478 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: When Does the Market Matter? Stock Prices and the Investsment of Equity-Dependent Firms (2002)
Working Paper: When Does the Market Matter? Stock Prices and the Investment of Equity-Dependent Firms (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:qjecon:v:118:y:2003:i:3:p:969-1005.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Quarterly Journal of Economics is currently edited by Robert J. Barro, Lawrence F. Katz, Nathan Nunn, Andrei Shleifer and Stefanie Stantcheva

More articles in The Quarterly Journal of Economics from President and Fellows of Harvard College
Bibliographic data for series maintained by Oxford University Press ().