Corporate responses to stock price fragility

Richard Friberg, Itay Goldstein, Kristine W. Hankins

Research output: Contribution to journalArticlepeer-review


This study shows that firms regard stock price fragility - exposure to non-fundamental demand shocks stemming from the composition of equity ownership - as a salient corporate risk. We model ex ante corporate responses to higher potential for future stock market misvaluation and then empirically document that within firm variation in equity fragility has effects in line with the model: higher fragility raises cash holdings and lowers investment. Multiple natural experiments support a causal interpretation of the results. The results are shown to be more prominent in the face of high uncertainty and financial constraints. The evidence presents a new dimension of how managerial expectations affect corporate policies.

Original languageEnglish
Article number103795
JournalJournal of Financial Economics
StatePublished - Mar 2024

Bibliographical note

Publisher Copyright:
© 2024 Elsevier B.V.


  • Financial fragility
  • Precautionary cash holding
  • Real effects of misvaluation

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


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