Firm-specific information and the efficiency of investment

Anusha Chari and Peter Henry

Journal of Financial Economics, 2008, vol. 87, issue 3, 636-655

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. Country-specific changes in the cost of capital drive changes in investment but firm-specific changes in the cost of capital do not.

Date: 2008
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Related works:
Working Paper: Firm-Specific Information and the Efficiency of Investment (2007)
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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