Abstract
Many studies have examined the impact of economic fundamentals on the financial market, but few have explored how financial market information affects the real economy. In this paper, we examine the effects of stock price informativeness on firms’ total factor productivity (TFP) using panel data of Chinese listed manufacturing firms over the period 2007 to 2017. Specifically, we use stock price nonsynchronicity to measure stock price informativeness, and real economic activity efficiency is proxied by the listed firms’ total factor productivity estimated by the LP and ACF methods. We find that stock price informativeness is positively associated with firms’ productivity in China. More importantly, we propose two possible mechanisms to intensify the consequences of stock price informativeness and find that operating pressure and financial constraints can positively intensify the relationship between stock price informativeness and firms’ TFP. As financial information is crucial for sustainable and steady economic growth, our research not only helps to reveal how the financial market promotes economic growth but also helps to provide new ideas for managers and policy-makers to alleviate operating pressure and financing constraints.
Highlights
It is extensively accepted that total factor productivity (TFP) is one of the most important core driving forces for firms’ development and economic growth
We propose two possible mechanisms to intensify the consequences of stock price informativeness and find that operating pressure and financial constraints can positively intensify the relationship between stock price informativeness and firms’ TFP
The results suggest that sales growth will moderate the positive relation between stock prices and TFP, which indicates that operating pressure will intensify the positive relation between stock price informativeness and TFP
Summary
It is extensively accepted that total factor productivity (TFP) is one of the most important core driving forces for firms’ development and economic growth. The managers of listed companies can learn and utilize the external private information contained in the stock price as a reference for decision-making (Chen et al, 2007; Luo, 2005; Zuo, 2016), such as investment or M&A plans, which would further influence the real business activities and promote the high-quality growth of those enterprises This is called the feedback effect of the stock market on the real economy (Bond et al, 2012), or the managerial learning hypothesis (Ben-Nasr & Alshwer, 2016; Zuo, 2016). More informative stock prices often mean higher transparency or lower information asymmetry
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