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Financial Markets and the Allocation of CapitalJeffrey WurglerNYU Stern School of Business; National Bureau of Economic Research (NBER) December 2011 Journal of Financial Economics (JFE), Vol. 58, pp, 187-214, 2000 NYU Working Paper No. FIN-11-023 Abstract: Financial markets appear to improve the allocation of capital. Across 65 countries, those with developed financial sectors increase investment more in their growing industries, and decrease investment more in their declining industries, than those with undeveloped financial sectors. The efficiency of capital allocation is negatively correlated with the extent of state ownership in the economy, positively correlated with the amount of firm-specific information in domestic stock returns, and positively correlated with the legal protection of minority investors.In particular, strong minority investor rights appear to curb overinvestment in declining industries.
Number of Pages in PDF File: 28 Accepted Paper SeriesDate posted: December 14, 2011Suggested CitationContact Information
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