Importance of Catering Incentives for Growth Dynamics

Journal of Behavioral Finance, Forthcoming

56 Pages Posted: 11 Nov 2006 Last revised: 6 Oct 2011

Denys Glushkov

University of Pennsylvania - The Wharton School, Wharton Research Data Services (WRDS); Acadian Asset Management LLC

Katsiaryna Salavei Bardos

Fairfield University - Department of Finance

Date Written: October 24, 2009

Abstract

This paper tests whether the dynamics of firm growth metrics, such as sales, investment growth, and changes in R&D and acquisitions, are more consistent with firms delivering growth when stock prices are more sensitive to growth related news (the catering channel) or with firms learning from stock prices about future growth prospects (the information channel). After developing “growth premium” measures, we document four main results consistent with catering theory: 1) time periods of high growth premium are followed by higher-than-expected growth indicators; 2) catering to the premium is more pronounced for firms whose managers care more about maximizing short-term stock price; 3) firms whose managers care more about short-term stock prices have higher time-series volatility of median sales, investment and PPE growth; 4) conditional trading strategy based on timing revenue growth premium yields 26 basis points per month after adjusting for risk and post-earnings announcement drift.

Keywords: Catering, Revenue surprises, Growth, Market reactions

JEL Classification: G14, G35

Suggested Citation

Glushkov, Denys and Bardos, Katsiaryna Salavei, Importance of Catering Incentives for Growth Dynamics (October 24, 2009). Journal of Behavioral Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=943439

Denys Glushkov (Contact Author)

University of Pennsylvania - The Wharton School, Wharton Research Data Services (WRDS) ( email )

WRDS, St. Leonard's Court
3819 Chestnut St, suite 300
Philadelphia, PA 19104
United States
2158986705 (Phone)

HOME PAGE: http://ssrn.com/author=664253

Acadian Asset Management LLC ( email )

260 Franklin Street
Boston, MA 02110
United States

Katsiaryna Salavei Bardos

Fairfield University - Department of Finance ( email )

Dolan School of Business
1073 North Benson Road
Fairfield, CT 06824
United States

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