Financial Markets and the Allocation of Capital

28 Pages Posted: 14 Dec 2011

See all articles by Jeffrey Wurgler

Jeffrey Wurgler

NYU Stern School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: December 2011

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.

Suggested Citation

Wurgler, Jeffrey A., Financial Markets and the Allocation of Capital (December 2011). NYU Working Paper No. 2451/31356; NYU Working Paper No. FIN-11-023. Available at SSRN: https://ssrn.com/abstract=1972124

Jeffrey A. Wurgler (Contact Author)

NYU Stern School of Business ( email )

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HOME PAGE: http://www.stern.nyu.edu/~jwurgler/

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