EconPapers    
Economics at your fingertips  
 

Equity Market Misvaluation, Financing, and Investment

Missaka Warusawitharana () and Toni Whited ()

Review of Financial Studies, 2016, vol. 29, issue 3, 603-654

Abstract: We estimate a dynamic investment model in which firms finance with equity, cash, or debt. Misvaluation affects equity values, and firms optimally issue and repurchase overvalued and undervalued shares. The funds flowing to and from these activities come from investment, dividends, or net cash. The model fits a broad set of data moments in large heterogeneous samples and across industries. Our parameter estimates imply that misvaluation induces larger changes in financial policies than investment. The investment responses are strongest for small firms but nonetheless modest. Managers' rational responses to misvaluation increase shareholder value by up to 4%. Received January 7, 2014; accepted September 30, 2015 by Editor Leonid Kogan.

Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (11) Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/10.1093/rfs/hhv066 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Equity market misvaluation, financing, and investment (2014) Downloads
Working Paper: Equity market misvaluation, financing, and investment (2013) Downloads
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:rfinst:v:29:y:2016:i:3:p:603-654.

Ordering information: This journal article can be ordered from
http://www4.oup.co.uk/revfin/subinfo/

Access Statistics for this article

Review of Financial Studies is currently edited by Maureen O'Hara

More articles in Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().

 
Page updated 2019-09-14
Handle: RePEc:oup:rfinst:v:29:y:2016:i:3:p:603-654.