Understanding the Evolution of the Share Price Norm

Posted: 11 Jun 2018

See all articles by Shima Amini

Shima Amini

University of Leeds; University of Leeds - Division of Accounting and Finance

Charlie X. Cai

University of Liverpool Management School

Date Written: May 1, 2018

Abstract

Why do firms manage their stock price levels? Building on the catering hypothesis and institutional investor preference literature, we propose a generalized catering hypothesis that managers cater their share price level to different types of investor (individual vs institutional) in order to attract them, conditional on the firm’s preferences as to ownership mix. We show that an institutional ownership premium provides strong explanatory power to the change in share price norm. This evidence supports our hypothesis that managers cater their share price level to the preference of institutional investors, but only when there is substantial benefit in doing so.

Keywords: Institutional ownership; Share price puzzle; IPO; Stock split; Norm hypothesis; Catering hypothesis

JEL Classification: G02, G10, G12

Suggested Citation

Amini, Shima and Cai, Charlie Xiaowu, Understanding the Evolution of the Share Price Norm (May 1, 2018). Leeds University Business School Working Paper No. 18-07. Available at SSRN: https://ssrn.com/abstract=3171467 or http://dx.doi.org/10.2139/ssrn.3171467

Shima Amini (Contact Author)

University of Leeds ( email )

Leeds, LS2 9JT
United Kingdom

University of Leeds - Division of Accounting and Finance ( email )

Leeds LS2 9JT
United Kingdom

Charlie Xiaowu Cai

University of Liverpool Management School ( email )

University of Liverpool
Liverpool, L69 7ZA
United Kingdom

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