Working Paper: NBER ID: w12186
Authors: Anusha Chari; Peter Blair Henry
Abstract: We use a new firm-level dataset to examine the efficiency of investment in emerging economies. In the three-year period following stock market liberalizations, the growth rate of the typical firm's capital stock exceeds its pre-liberalization mean by an average of 5.4 percentage points. Cross-sectional changes in investment are significantly correlated with the signals about fundamentals embedded in the stock price changes that occur upon liberalization. Panel data estimations show that a 1-percentage point increase in a firm's expected future sales growth predicts a 4.1-percentage point increase in its investment; country-specific changes in the cost of capital predict a 2.3-percentage point increase in investment; firm-specific changes in risk premia do not affect investment.
Keywords: Investment; Emerging Economies; Stock Market Liberalization; Firm-Specific Information
JEL Codes: E; F; G
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| expected future sales growth (F17) | investment (G31) |
| country-specific changes in cost of capital (F21) | investment (G31) |
| stock price changes (G12) | investment (G31) |
| changes in risk premia (G19) | investment (G31) |