Investors' Behavior Explanations

Paper Summary:

The paper lists various factors by which investors can be influenced by the corporations in which they invest. The paper analyzes each factor to demonstrate that this behavior is a form of over reaction. In conclusion, the writer states that investors do not realize that their behavior could influence the market for which they are working and that in the process of over reaction, they create external forces that can lead back to them, making them vulnerable to the same factors they want to avoid.

Table of Contents:
Downsizing
Fidgety Shareholders
Resource Management
Governance
Liquidity
Hedging
Conclusion
Bibliography

From the Paper:

"In addition to financial information conveyed in the layoff signal, investors view firms' governance practices as important information to help them assess the "bottom-line" results of the announced layoff strategy. In capital market theory, the stock market's reaction to an announced event reflects all available information. However, management has an information advantage over investors by knowing how much effort it actually intends to put into the short- and long-term activities that will create current and future earnings. Such information asymmetries can compromise the accuracy of investors' evaluation of managers' strategies. Valuable inside information influences the content of the signal that firms convey in announcements to investors. Besides signaling, firms use layoff announcements as a form of impression management by attempting to "make work force reductions appear proactive rather than reactive" This implies that investors may receive inaccurate or incomplete information about how management intends to execute and implement its layoff strategy."

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