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    Rights statement: This is the author’s version of a work that was accepted for publication in Journal of Financial Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Financial Economics, ??, 2019 DOI: 10.1016/j.jfineco.2019.09.006

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Does the stock market make firms more productive?

Research output: Contribution to journalJournal article

E-pub ahead of print
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<mark>Journal publication date</mark>24/09/2019
<mark>Journal</mark>Journal of Financial Economics
Publication statusE-pub ahead of print
Early online date24/09/19
Original languageEnglish

Abstract

Management, directly or indirectly,learns from its firm’s stock price, so a more informative stock price should make the firm more productive. We show that stock price informativeness increases firm productivity. We provide direct evidence of one channel through which stock price informativeness affects productivity; specifically, we find that CEO turnover is less sensitive to Tobin’s q when informativeness is lower. 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 further address endogeneity concerns with the use of brokerage closures, S&P 500 additions, and mutual fund redemptions as plausibly exogenous events.

Bibliographic note

This is the author’s version of a work that was accepted for publication in Journal of Financial Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Financial Economics, ??, 2019 DOI: 10.1016/j.jfineco.2019.09.006