Firm-specific information and the efficiency of investment |
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| Authors: | Anusha Chari Peter Blair Henry |
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| Affiliation: | 1. University of Michigan, Department of Economics, 611 Tappan Street, Ann Arbor, MI 48109, USA;2. Stanford University, Graduate School of Business, Stanford, CA, 94305, USA |
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| Abstract: | 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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| Keywords: | E2 F3 G15 G31 |
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