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Does the stock market make firms more productive?

Benjamin Bennett, René Stulz and Zexi Wang

Journal of Financial Economics, 2020, vol. 136, issue 2, 281-306

Abstract: Management, directly or indirectly, learns from its firm's stock price, so a more informative stock price should make the firm more productive. We show that stock price informativeness increases firm productivity. We provide direct evidence of one channel through which stock price informativeness affects productivity; specifically, we find that CEO turnover is less sensitive to Tobin's q when informativeness is lower. We predict and confirm that the productivity of smaller and younger firms, better governed firms, more specialized firms, and firms with more competition is more strongly related to the informativeness of their stock price. We further address endogeneity concerns with the use of brokerage closures, S&P 500 additions, and mutual fund redemptions as plausibly exogenous events.

Keywords: Stock price informativeness; TFP; Firm efficiency (search for similar items in EconPapers)
JEL-codes: G14 G30 (search for similar items in EconPapers)
Date: 2020
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Working Paper: Does the Stock Market Make Firms More Productive? (2017) Downloads
Working Paper: Does the Stock Market Make Firms More Productive? (2017) Downloads
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DOI: 10.1016/j.jfineco.2019.09.006

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