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The Allocation and Monitoring Role of Capital Markets: Theory and International Evidence

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  • Solomon Tadesse

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Abstract

Capital markets perform two distinct functions: provision of capital and facilitation of good governance through information production and monitoring. I argue that the governance function has more impact on the efficiency with which resources are utilized within the firm. Based on industry level data across thirty-eight countries, I present evidence suggesting a positive relation between market-based governance and improvements in industry efficiency. The measures of governance are also positively correlated with productivity improvements and growth in real output. Furthermore, while governance affects efficiency, the capital provision services induce technological change. The evidence underscores the role of capital markets as a conduit of socially valuable governance services as distinct from capital provision

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File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp881.pdf
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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp881.

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Length: pages
Date of creation: 01 Mar 2003
Date of revision:
Handle: RePEc:wdi:papers:2007-881

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Related research

Keywords: Corporate Governance; Information Aggregation; Monitoring; Economic Efficiency; Productivity; Economic Growth;

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Cited by:
  1. Calcagno, Riccardo & Heider, Florian, 2007. "Market based compensation, price informativeness and short-term trading," Working Paper Series 0735, European Central Bank.

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