Does the Stock Market Make Firms More Productive?

Fisher College of Business Working Paper No. 2017-03-029

Charles A. Dice Working Paper No. 2017-29

47 Pages Posted: 4 Dec 2017 Last revised: 1 Aug 2018

See all articles by Benjamin Bennett

Benjamin Bennett

Tulane University - A.B. Freeman School of Business

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Zexi Wang

Lancaster University

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2018

Abstract

Management, directly or indirectly, learns from its firm’s stock price, so that a more informative stock price should make the firm more productive. We show that stock price informativeness increases firm productivity. We predict and confirm that the productivity of smaller and younger firms, better governed firms, more specialized firms, and firms with more competition is more strongly related to the informativeness of their stock price. 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.

Keywords: stock price informativeness, private information, stock market, productivity, governance

JEL Classification: D22, G14, G31

Suggested Citation

Bennett, Benjamin and Stulz, Rene M. and Wang, Zexi, Does the Stock Market Make Firms More Productive? (August 1, 2018). Fisher College of Business Working Paper No. 2017-03-029, Charles A. Dice Working Paper No. 2017-29, Available at SSRN: https://ssrn.com/abstract=3080957 or http://dx.doi.org/10.2139/ssrn.3080957

Benjamin Bennett

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

HOME PAGE: https://sites.google.com/site/benjaminbennettfinance/home

Rene M. Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Zexi Wang

Lancaster University ( email )

Lancaster University Management School
Bailrigg
Lancaster, LA1 4YX
United Kingdom

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