Abstract

http://ssrn.com/abstract=515222
 
 

References (49)



 


 



Why Do Share Price Levels Matter? Investor Clienteles, Monitoring and Firm Performance


Chitru S. Fernando


University of Oklahoma - Michael F. Price College of Business

Vladimir A. Gatchev


University of Central Florida - Department of Finance

Paul A. Spindt


Tulane University - A.B. Freeman School of Business



Abstract:     
We develop a model in which firms select share prices by trading off the benefits of institutional investor monitoring against the value of a broad shareholder base. Firms that anticipate small gains from institutional monitoring target a retail investor clientele by setting lower share prices while firms that anticipate large gains from institutional monitoring target an institutional investor clientele by setting higher share prices. Our model also implies that high-priced stocks will be of higher quality than low-priced stocks, and that higher quality firms will more persistently maintain their quality over time and choose higher split-to prices when they split their shares. Our empirical findings confirm these predictions, providing strong support for our notion that share price levels are endogenously determined based on a firm's preferred ownership clientele.

Number of Pages in PDF File: 46

Keywords: Share price, stock splits, firm quality, S&P ranking, institutional ownership, monitoring

JEL Classification: C24, G12, G30

working papers series


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Date posted: March 8, 2004 ; Last revised: September 19, 2011

Suggested Citation

Fernando, Chitru S. and Gatchev, Vladimir A. and Spindt, Paul A., Why Do Share Price Levels Matter? Investor Clienteles, Monitoring and Firm Performance. Available at SSRN: http://ssrn.com/abstract=515222 or http://dx.doi.org/10.2139/ssrn.515222

Contact Information

Chitru S. Fernando (Contact Author)
University of Oklahoma - Michael F. Price College of Business ( email )
Adams Hall
307 West Brooks Street
Norman, OK 73019-4004
United States
405-325-2906 (Phone)
405-325-7688 (Fax)
HOME PAGE: http://faculty-staff.ou.edu/F/Chitru.Fernando-1/
Vladimir A. Gatchev
University of Central Florida - Department of Finance ( email )
Orlando, FL 32816-1400
United States
(407) 823-3694 (Phone)
(407) 823-6676 (Fax)
HOME PAGE: http://www.bus.ucf.edu/vgatchev/
Paul A. Spindt
Tulane University - A.B. Freeman School of Business ( email )
7 McAlister Drive
New Orleans, LA 70118
United States
504-865-5413 (Phone)
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