Does the Stock Market Make Firms More Productive?

Benjamin Bennett, René Stulz and Zexi Wang
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Benjamin Bennett: Ohio State University
Zexi Wang: University of Bern

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: We test the hypothesis that greater stock price informativeness (SPI) leads to higher firm-level productivity (TFP). Management, directly or indirectly, learns more from more informative stock prices, so that more informative stock prices should make firms more productive. We find a positive relation between SPI and TFP. The relation is stronger for smaller, younger, riskier, less capital-intensive, and financially-constrained firms. Product market competition and better governance amplify the relation, while diversification weakens it. We address endogeneity concerns with fixed effects, instrumental variables, and the use of brokerage house research department closures and S&P 500 additions as plausibly exogenous events.

JEL-codes: D22 G14 G31 (search for similar items in EconPapers)
Date: 2017-11
New Economics Papers: this item is included in nep-bec
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Does the stock market make firms more productive? (2020)
Working Paper: Does the Stock Market Make Firms More Productive? (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2017-29

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