Warusawitharana, Missaka; Whited, Toni M. - Federal Reserve Board (Board of Governors of the … - 2013
We quantify how much nonfundamental movements in stock prices affect firm decisions. We estimate a dynamic investment … 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 …