Events

Professor Itay Goldstein
Professor of Finance
University of Pennsylvania (Wharton)

This study shows that firms regard stock price fragility – exposure to non-fundamental demand shocks stemming from the composition of equity ownership – as a salient corporate risk. We model ex-ante corporate responses to higher potential for future stock market misvaluation and then empirically document that within firm variation in equity fragility has effects in line with the model: higher fragility raises cash holdings and lowers investment. Multiple natural experiments support a causal interpretation of the results. The results are shown to be more prominent in the face of high uncertainty and financial constraints. The evidence presents a new dimension in the feedback channel which connects the stock market and corporate policies.