Firm-Specific Information and the Efficiency of Investment

Anusha Chari and Peter Henry

Research Papers from Stanford University, Graduate School of Business

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, depending on the specification; country-specific changes in the cost of capital are also important, generating an economically and statistically significant change in capital stock growth in almost every specification; firm-specific changes in risk premia do not affect investment.

Date: 2007-08
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Related works:
Journal Article: Firm-specific information and the efficiency of investment (2008)
Working Paper: Firm-Specific Information and the Efficiency of Investment (2007)
Working Paper: Firm-Specific Information and the Efficiency of Investment (2006)
Working Paper: Firm-Specific Information and the Efficiency of Investment (2006)
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