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Firm-specific information and the efficiency of investment

  • Chari, Anusha
  • Blair Henry, Peter

In the three-year period following stock market liberalizations, the growth rate of the typical firm's capital stock exceeds its pre-liberalization mean by an average of 4.1 percentage points. Cross-sectional changes in investment are significantly correlated with the signals about fundamentals embedded in the stock price changes that occur upon liberalization. Panel-data estimations show that a 10-percentage point increase in a firm's expected future sales growth predicts a 2.9- to 3.5-percentage point increase in the growth rate of its capital stock. Country-specific changes in the cost of capital drive changes in investment but firm-specific changes in the cost of capital do not.

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Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 87 (2008)
Issue (Month): 3 (March)
Pages: 636-655

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Handle: RePEc:eee:jfinec:v:87:y:2008:i:3:p:636-655
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

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