The influence of the stock market on corporate investment

Armand, Rayanne

The influence of the stock market on corporate investment

Master Thesis

2016

Publisher

University of Cape Town

Department

Department of Finance and Tax

Faculty

Faculty of Commerce

Abstract

This paper investigates how corporate investment is influenced by the non-fundamental component of stock prices. Previous research conducted has found that investment is sensitive to equity mispricing where both the stock is undervalued and the firm is dependent on equity. Under these conditions the firm would need to issue undervalued equity to fund new investment. The suggestion is that the investment behaviours of equity dependent firms display a stronger correlation to stock prices than firms that are not dependent on equity. It is of particular interest to investigate the effect of equity-dependence on corporate investment in South Africa as developing economies often do not have access to debt due to under-developed credit markets.

Keywords

Financial Management

Reference:

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