Capital allocation, stock return volatility and productivity growth in US industries

Hyunbae Chun and Jung-Wook Kim

Applied Economics Letters, 2011, vol. 18, issue 16, 1571-1576

Abstract: Using firm-level Compustat data from 1971 to 2000, we report a substantial cross-industry variation of allocative efficiency in capital expenditure in the US economy. Industries with higher allocative efficiency are the ones with higher firm-level value-added growth heterogeneity, higher information transparency captured by firm-specific stock return volatility and faster long-run productivity growth. This finding is consistent with the idea of creative destruction, where a well-functioning market mechanism sharply distinguishes winners from losers and thus enhances economic growth in the long run. Allocative efficiency has a substantial economic significance and explains as much as 24.5% of the difference in long-run industry productivity growth.

Keywords: allocative efficiency; capital expenditure; stock return volatility; productivity (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1080/13504851.2010.548781

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