"Stock-based compensation is the standard solution to agency problems between shareholders and managers. In a dynamic rational expectations equilibrium model with asymmetric information we show that although stock-based compensation causes managers to work harder, it also induces them to hide...

I theoretically investigate how the informational content of stock prices is affected by the structure of firms' capital investment decisions. The efficiency of stock prices is determined by the weight firms attach to private information and by the extent to which investment is predictable. Both...

Using financial institution mergers as exogenous shocks to common ownership, we find that stock prices of commonly held firms incorporate future earnings news more quickly and are less sensitive to noise traders. Our analyses show that the increase in price informativeness is due to: (1)...

Stock-based compensation is the standard solution to agency problems between shareholders and managers. In a dynamic rational expectations equilibrium model with asymmetric information we show that although stock-based compensation causes managers to work harder, it also induces them to hide any...

Many economists believe that the stock market plays an important role in efficiently allocating capital to its most productive uses. This standard story of the stock market was called into question by events in the late 1990s, when some observers believed that stock market overvaluation - or a...

This paper provides evidence for a causal effect of equity prices on corporate investment and employment. We use fire sales by distressed equity funds during the 2007--2009 financial crisis to identify substantial exogenous underpricing. Firms whose stocks are most underpriced have considerably...

We investigate whether suppliers adjust innovative supply-chain investment following stock market signals about customers' economic prospects. We show that suppliers increase R&D and investments in customer-related patents after positive market reactions to customers' new product announcements....

Whether, and to what extent, behavioral anomalies uncovered in the lab manifest themselves in the field remains of first order importance in finance and economics. We begin by examining behavior of retail traders/investors making investment decisions in constructed laboratory markets. Our...

Firms significantly reduce their investment in response to non-fundamental drops in the stock price of their product-market peers. We argue that this result arises because of managers' limited ability to filter out the noise in stock prices when using them as signals about their investment...