Stock Price Informativeness and Corporate Investment Efficiency: Evidence from Chinese Manufacturing Listed Companies between 2001 and 2005

摘要

Despite recent claims that stock price informativeness can have economic implications for investment efficiency, there is little evidence on this relation empirically. By the use of Durnev et al. (2003) firm-year measure of stock price informativeness, the paper studies the effect of stock price informativeness on corporate investment efficiency based on corporate level on a sample of Chinese manufacturing listed companies from 2001 to 2005. The empirical results indicate: stock price informativeness is negatively associated with both listed companies' overinvestment and underinvestment. It also eliminates the possibility that the negative correlation is caused by the case that managers decrease stock price informativeness to conceal the investment losses. Further, stock price informativeness can decrease the sensitivity of overinvestment to free cash flow and the sensitivity of underinvestment to financing constraints. The paper finally confirms the conclusion from the angle of corporate performance. Overall, this paper has implications for research examining the determinants of investment efficiency and the economic consequences of stock price informativeness.