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Equity Market Misvaluation, Financing, and Investment

Equity Market Misvaluation, Financing, and Investment

Paperback

Business General

ISBN10: 1503231232
ISBN13: 9781503231238
Publisher: Createspace
Published: Nov 15 2014
Pages: 52
Weight: 0.32
Height: 0.11 Width: 8.50 Depth: 11.02
Language: English
We quantify how much nonfundamental movements in stock prices affect firm decisions. We estimate a dynamic investment model in which firms can finance with equity or cash (net of 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 either investment, dividends, or net cash. The model fits a broad set of data moments in large heterogeneous samples and across industries. Firms respond to misvaluation by adjusting financing more than by adjusting investment. Managers' rational responses to misvaluation increase shareholder value by up to 8%.

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Business General