Firm-Specific Information and the Efficiency of Investment

Anusha Chari and Peter Henry (pbhenry@stanford.edu)
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Peter Henry: Graduate School of Business, Stanford University

No 07-005, Discussion Papers from Stanford Institute for Economic Policy Research

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.

Keywords: investment; stock market liberalization; capital stock (search for similar items in EconPapers)
JEL-codes: G00 (search for similar items in EconPapers)
Date: 2007-08
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http://www-siepr.stanford.edu/repec/sip/07-005.pdf (application/pdf)

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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