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Does Firm-specific Information in Stock Prices Guide Capital Allocation?

  • Artyom Durnev
  • Randall Morck
  • Bernard Yeung

We show that firms in industries in which firm-specific stock price variation is larger use more external financing and allocate capital with greater precision in the sense that their marginal q ratios are closer to one. According to the Efficient Markets Hypothesis, greater firm-specific stock price variation reflects higher intensity firm-specific information capitalization in stock prices. We propose that higher firm-specific price variation may be an indicator of greater functional-form market efficiency in the sense of Tobin (1982).

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8093.

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Date of creation: Jan 2001
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Handle: RePEc:nbr:nberwo:8093
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