University of Michigan
Ann Arbor, MI 48109
Institutional Affiliation: University of Michigan
NBER Working Papers and Publications
|January 2001||Does Firm-specific Information in Stock Prices Guide Capital Allocation?|
with Randall Morck, Bernard Yeung: w8093
We show that firms in industries in which firm-specific stock price variation is larger use more external financing and allocate capital with greater precision in the sense that their marginal q ratios are closer to one. According to the Efficient Markets Hypothesis, greater firm-specific stock price variation reflects higher intensity firm-specific information capitalization in stock prices. We propose that higher firm-specific price variation may be an indicator of greater functional-form market efficiency in the sense of Tobin (1982).