The impact of liquidity-motivated institutional trading on firms' real decisions is not confined to periods of financial crises. Firms subject to mutual fund flow-driven selling pressure reduce share issuance and investment, whereas firms experiencing buying pressure do not increase investment,...

This paper contributes empirically to the ‘Excess Sensitivity' literature by arguing that results obtained by using investment-cash flow sensitivity as a metric to represent finance constraint of firms can be misleading. This is because cash flow apart from signaling change in net worth may...

Feedback from stock prices to cash flows occurs because information revealed by firms' stock prices influences the actions of competitors. We explore the implications of feedback within a noisy rational expectations setting with publicly listed and private firms. In our setting, stock prices are...

In a sample of 485 Chinese public high-tech companies, we show that the R&D investment is significantly dependent on internal cash flow. Based on the sizable discrepancies of stock market and financial intermediary developments in the East, Middle and West regions of China, empirical estimation...

The empirical performance of the Q theory of investment can be significantly improved by simultaneously considering the time- and the frequency-varying features of the investment-Q relationship. Using continuous wavelet tools, I assess the investment-Q sensitivity at different frequencies and...

In this paper we estimate the effects of financialization on physical investment in selected western European countries using panel data based on the balance-sheets of publicly listed non-financial companies (NFCs) supplied by Worldscope for the period 1995-2015. We find robust evidence of an...

We analyze whether variation in systemic risk in the banking system (also known as “bank systemic risk”) can explain corporate investment. We show that in a sample of publicly listed firms in 10 advanced and emerging markets economies during the period 1990–2013, bank systemic risk is...

We analyze information production incentives for traders in financial markets, when firms condition investment decisions on information revealed through stock prices. We show that traders' private value of information about a firm's investment project increases with the ex ante likelihood the...

We study the impact of a financial transaction tax (FTT) in a model that combines asset trade and real investment. An informed trader holds private information about the fundamental value of a firm and the firm's manager relies on the asset price to infer such information and invest accordingly....