Catering through nominal share prices
By: Malcolm Baker, Robin Greenwood, Jeffrey Wurgler.
Contributors: Greenwood, Robin; Wurgler,Jeffrey.; National Bureau of Economic Research.
Series: NBER working paper series -- working paper 13762; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 13762.
Publisher: National Bureau of Economic Research
Published: 2008
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "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"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 6/12/2008.

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