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Asymmetric information, firm investment and stock prices

Asymmetric information, firm investment and stock prices Purpose – The purpose of this paper is to explore the relations of investment and stock prices (Tobin‐Q), the impact of asymmetric information on the investment sensitivity to stock price, and the impact of asymmetric information on the stock price sensitivity to investment. Design/methodology/approach – Research was conducted with 313 listed companies and 1,878 firm‐year observations from Chinese stock market. Empirical studies were conducted based on two hypotheses by using R 2 , information delay and scores of information disclosure as measures of asymmetric information and taking changes in book assets and capital expenditures scaled by book assets as measures of investment. Findings – The key findings of the paper are: managers are learning from the market when they make investment decisions; the asymmetric information has a significant negative impact on the investment sensitivity to stock price; and the asymmetric information has a significant positive impact on the stock price sensitivity to investment. Practical implications – The paper has a significant practical implication for regulation policy making in stock market. Originality/value – The paper fills the research gap in two points. It studies the impact of asymmetric information on the investment sensitivity to stock price, and the impact of asymmetric information on the stock price sensitivity to investment in Chinese stock market for the first time. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png China Finance Review International Emerald Publishing

Asymmetric information, firm investment and stock prices

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Publisher
Emerald Publishing
Copyright
Copyright © 2011 Emerald Group Publishing Limited. All rights reserved.
ISSN
2044-1398
DOI
10.1108/20441391111092246
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to explore the relations of investment and stock prices (Tobin‐Q), the impact of asymmetric information on the investment sensitivity to stock price, and the impact of asymmetric information on the stock price sensitivity to investment. Design/methodology/approach – Research was conducted with 313 listed companies and 1,878 firm‐year observations from Chinese stock market. Empirical studies were conducted based on two hypotheses by using R 2 , information delay and scores of information disclosure as measures of asymmetric information and taking changes in book assets and capital expenditures scaled by book assets as measures of investment. Findings – The key findings of the paper are: managers are learning from the market when they make investment decisions; the asymmetric information has a significant negative impact on the investment sensitivity to stock price; and the asymmetric information has a significant positive impact on the stock price sensitivity to investment. Practical implications – The paper has a significant practical implication for regulation policy making in stock market. Originality/value – The paper fills the research gap in two points. It studies the impact of asymmetric information on the investment sensitivity to stock price, and the impact of asymmetric information on the stock price sensitivity to investment in Chinese stock market for the first time.

Journal

China Finance Review InternationalEmerald Publishing

Published: Oct 2, 2010

Keywords: Investments; Information strategy; Stock prices; China

References