Abstract

http://ssrn.com/abstract=622421
 
 

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Capital Markets and Capital Allocation: Implications for Economies in Transition


Art Durnev


University of Iowa - Henry B. Tippie College of Business

Randall Morck


University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER)

Bernard Yin Yeung


National University of Singapore - Business School

Kan Li


University of Alberta - School of Business


Economics of Transition, Vol. 12, No. 4, pp. 593-634, December 2004

Abstract:     
Recent work showing that a sounder financial system is associated with faster economic growth has important implications for transition economies. Stock prices in developed economies move in highly firm-specific ways that convey information about changes in firms' marginal value of investment. This information facilitates the rapid flow of capital to its highest value uses. In contrast, stock prices in low-income countries tend to move up and down en masse, and thus are of scant use for microeconomic capital allocation. Some transition economy markets are coming to resemble those of developed economies, others those of low-income countries. Stock return asynchronicity is highly correlated with the strength of private property rights in general and public shareholders' rights in particular. Other recent work suggests that small entrenched elites in low-income countries preserve their sweeping control over the corporate sectors of their economies by using political influence to undermine the financial system and deprive entrants of capital. The lack of cross-sectional independence in some transition economies' stock returns may be a warning of such economic entrenchment. Sound property rights, solid shareholder rights, stock market transparency, and capital account openness appear to check this, and thus contribute to efficient capital allocation and economic growth.

Number of Pages in PDF File: 42

Accepted Paper Series





Date posted: December 3, 2004  

Suggested Citation

Durnev, Art and Morck, Randall and Yeung, Bernard Yin and Li, Kan, Capital Markets and Capital Allocation: Implications for Economies in Transition. Economics of Transition, Vol. 12, No. 4, pp. 593-634, December 2004. Available at SSRN: http://ssrn.com/abstract=622421

Contact Information

Artyom Durnev (Contact Author)
University of Iowa - Henry B. Tippie College of Business ( email )
108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
(514) 398-5394 (Phone)
(514) 398-3876 (Fax)
HOME PAGE: http://www.artdurnev.com
Randall K. Morck
University of Alberta - Department of Finance and Statistical Analysis ( email )
2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada
780-492-5683 (Phone)
780-492-3325 (Fax)

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Bernard Yin Yeung
National University of Singapore - Business School ( email )
1 Business Link
Biz 2 Building Level 6
Singapore 117592
Singapore
65 6516 3075 (Phone)
65 6779 1365 (Fax)
Kan Li
University of Alberta - School of Business ( email )
2-43 Business Building
Edmonton, Alberta T6G 2C7
Canada
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References:  61
Citations:  24

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