Stock Price Informativeness, Analyst Coverage and Economic Growth: Evidence from Emerging Markets

1 Pages Posted: 8 Jan 2013

See all articles by Fang Chin Cheng

Fang Chin Cheng

University of New South Wales

Ferdinand A. Gul

Deakin University - Department of Accounting

Bin Srinidhi

University of Texas at Arlington - Department of Accounting; City University of Hong Kong (CityUHK) - Department of Accountancy

Multiple version iconThere are 2 versions of this paper

Date Written: January 7, 2013

Abstract

This paper extends the output growth model tested by Levine and Zervos (1998) by including a channel for capital allocation efficiency proxied by stock price informativeness. Using a sample of 59 countries, this study finds that stock price informativeness as measured by firm-specific return variation is positively associated with output growth after controlling for variables in the Levine and Zervos’s (1998) model. We find that stock price informativeness acts as a substitute for stock market liquidity in predicting output growth. These results are consistent with the Roll’s (1988) claim: more information-laden stock prices signal efficient stock markets and, therefore, stronger output growth. We also find that firms in emerging economies covered by more analysts incorporate greater (lesser) systematic-wide (firm-specific) information which impede the role of stock price informativeness on facilitating output growth.

Keywords: Stock price informativeness, Capital allocation efficiency, Firm-specific return variation, Economic growth, Capital Inflows, Ordered probit

JEL Classification: C01, C32, C33, C35, C58, C61, C87, E22, E44, E51, E62, F15, F18, G01, G12, G15, H52, P14, P43

Suggested Citation

Cheng, Fang Chin and Gul, Ferdinand A. and Srinidhi, Bin, Stock Price Informativeness, Analyst Coverage and Economic Growth: Evidence from Emerging Markets (January 7, 2013). Available at SSRN: https://ssrn.com/abstract=2197620 or http://dx.doi.org/10.2139/ssrn.2197620

Fang Chin Cheng (Contact Author)

University of New South Wales ( email )

Level 3, West Wing
Australian School of Business
Sydney, NSW 2052
Australia

Ferdinand A. Gul

Deakin University - Department of Accounting ( email )

Melbourne
Australia

Bin Srinidhi

University of Texas at Arlington - Department of Accounting ( email )

Arlington, TX 76013
United States

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

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