University of Bern
Institute for Financial Management
CH-3012 Bern Switzerland
Institutional Affiliation: University of Bern
NBER Working Papers and Publications
|December 2017||Does the Stock Market Make Firms More Productive?|
with Benjamin Bennett, René Stulz: w24102
We test the hypothesis that greater stock price informativeness (SPI) leads to higher firm-level productivity (TFP). Management, directly or indirectly, learns more from more informative stock prices, so that more informative stock prices should make firms more productive. We find a positive relation between SPI and TFP. The relation is stronger for smaller, younger, riskier, less capital-intensive, and financially-constrained firms. Product market competition and better governance amplify the relation, while diversification weakens it. We address endogeneity concerns with fixed effects, instrumental variables, and the use of brokerage house research department closures and S&P 500 additions as plausibly exogenous events.
Published: Benjamin Bennett & René Stulz & Zexi Wang, 2019. "Does the stock market make firms more productive?," Journal of Financial Economics, .