TY  - JOUR
AU  - Aghion,Philippe
AU  - Stein,Jeremy C.
TI  - Growth vs. Margins: Destabilizing Consequences of Giving the Stock Market What it Wants
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10999
PY  - 2004
Y2  - December 2004
UR  - http://www.nber.org/papers/w10999
L1  - http://www.nber.org/papers/w10999.pdf
N1  - Author contact info:
Philippe Aghion
Department of Economics
Harvard University
1805 Cambridge St
Cambridge, MA 02138
Tel: 617/495-6675
Fax: 617/495-4341
E-Mail: paghion@fas.harvard.edu

Jeremy C. Stein
Department of Economics
Harvard University
Littauer 209
Cambridge, MA  02138
Tel: 617/496-6455
Fax: 617/496-7352
E-Mail: jeremy_stein@harvard.edu
AB  - We develop a multi-tasking model in which a firm can devote its efforts either to increasing sales growth, or to improving per-unit profit margins by, e.g., cutting costs. If the firm's manager is concerned with the current stock price, she will tend to favor the growth strategy at those times when the stock market is paying more attention to performance on the growth dimension. Conversely, it can be rational for the stock market to weight observed growth measures more heavily when it is known that the firm is following a growth strategy. This two-way feedback between firms' business strategies and the market's pricing rule can lead to purely intrinsic fluctuations in sales and output, creating excess volatility in these real variables even in the absence of any external source of shocks.
ER  -