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Do share prices matter?

Do share prices matter? This paper examines whether the cross sectional variation in Australian share prices is partially explained by measures of firm size and ownership characteristics in a manner that is consistent with firms behaving in accordance with Merton’s (1987) model of capital market equilibrium with incomplete information. Based on a sample of firms whose shares were traded on the ASX during 1995, we show that firms largely owned by less wealthy shareholders tend to have low stock prices, although this relation is not linear. In addition, larger, better–known, firms tend to have higher stock prices. These findings are consistent with prior evidence from US markets, and suggest the existence of a shareholder clientele effect in Australia that is related to the share price of the underlying firm. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Accounting & Finance Wiley

Do share prices matter?

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Publisher
Wiley
Copyright
The Accounting Association of Australia and New Zealand, 2002
ISSN
0810-5391
eISSN
1467-629X
DOI
10.1111/1467-629X.00075
Publisher site
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Abstract

This paper examines whether the cross sectional variation in Australian share prices is partially explained by measures of firm size and ownership characteristics in a manner that is consistent with firms behaving in accordance with Merton’s (1987) model of capital market equilibrium with incomplete information. Based on a sample of firms whose shares were traded on the ASX during 1995, we show that firms largely owned by less wealthy shareholders tend to have low stock prices, although this relation is not linear. In addition, larger, better–known, firms tend to have higher stock prices. These findings are consistent with prior evidence from US markets, and suggest the existence of a shareholder clientele effect in Australia that is related to the share price of the underlying firm.

Journal

Accounting & Finance – Wiley

Published: Nov 1, 2002

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