Publication:
Strategic Information Revelation and Capital Allocation

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dc.contributor.authorPedraza Morales, Alvaro
dc.date.accessioned2014-08-15T18:40:12Z
dc.date.available2014-08-15T18:40:12Z
dc.date.issued2014-07
dc.description.abstractIt is commonly believed that stock prices help firms' managers make more efficient real investment decisions, because they aggregate information about fundamentals that is not otherwise known to managers. This paper identifies a limitation to this view. It shows that if informed traders internalize that firms use prices as a signal, stock price informativeness depends on the quality of managers' prior information. In particular, managers with low quality information would like to learn about their own fundamentals by relying on the information aggregated in the stock price. However, in this case, the profitability of trading falls for informed speculators, who therefore reduce their trading volume, reducing the informativeness of prices. As a result, stock prices are not as useful in guiding capital toward its most productive use, leading to inefficient investment decisions. Using a sample of U.S. publicly traded companies between 1990 and 2010, the paper documents a positive correlation between the quality of managerial information and stock price informativeness. Contrary to the conventional view that less informed managers should rely more on stock prices when making investment decisions, the author finds no differences in the sensitivity of investment to stock prices for different levels of managerial information. The evidence suggests that while firms do learn from prices, the learning channel and its effects on real investment are limited.en
dc.identifierhttp://documents.worldbank.org/curated/en/2014/07/19902948/strategic-information-revelation-capital-allocation
dc.identifier.doi10.1596/1813-9450-6995
dc.identifier.urihttps://hdl.handle.net/10986/19380
dc.languageEnglish
dc.language.isoen_US
dc.publisherWorld Bank Group, Washington, DC
dc.relation.ispartofseriesPolicy Research Working Paper;No. 6995
dc.rightsCC BY 3.0 IGO
dc.rights.urihttp://creativecommons.org/licenses/by/3.0/igo/
dc.subjectACCESS TO FINANCING
dc.subjectACCOUNTING
dc.subjectAFFILIATED ORGANIZATIONS
dc.subjectAGENCY PROBLEM
dc.subjectAMORTIZATION
dc.subjectARBITRAGE
dc.subjectASSET PRICE
dc.subjectASSET PRICES
dc.subjectASSETS RATIO
dc.subjectASYMMETRIC INFORMATION
dc.subjectBENCHMARK
dc.subjectBOND
dc.subjectBOOK VALUE
dc.subjectBOOK VALUES
dc.subjectBROKERS
dc.subjectBUDGETING
dc.subjectCAPITAL ALLOCATION
dc.subjectCASH FLOWS
dc.subjectCORPORATE BOND
dc.subjectCORPORATE INSIDERS
dc.subjectCORPORATE INVESTMENT
dc.subjectCREDIT RATING
dc.subjectCREDIT SPREADS
dc.subjectDEMAND FUNCTION
dc.subjectDEVELOPMENT POLICY
dc.subjectDISCLOSURE
dc.subjectECONOMIES OF SCALE
dc.subjectELASTICITY
dc.subjectELASTICITY OF SUPPLY
dc.subjectEMERGING MARKETS
dc.subjectEQUILIBRIUM
dc.subjectEQUILIBRIUM PRICE
dc.subjectEQUITY INVESTORS
dc.subjectEXOGENOUS SUPPLY
dc.subjectEXPECTED VALUE
dc.subjectEXPENDITURES
dc.subjectFAIR
dc.subjectFEDERAL RESERVE
dc.subjectFEDERAL RESERVE BANK
dc.subjectFINANCIAL MARKETS
dc.subjectFINANCIAL STUDIES
dc.subjectFINANCIAL SYSTEMS
dc.subjectFIXED ASSETS
dc.subjectFIXED INVESTMENT
dc.subjectFORECASTS
dc.subjectFUNCTIONAL FORMS
dc.subjectFUTURE CASH FLOW
dc.subjectFUTURE EARNINGS
dc.subjectGDP
dc.subjectIMPERFECT COMPETITION
dc.subjectINCOME
dc.subjectINDIVIDUAL FIRMS
dc.subjectINDIVIDUAL INVESTORS
dc.subjectINFLATION
dc.subjectINFORMED TRADER
dc.subjectINFORMED TRADERS
dc.subjectINSIDER TRADING
dc.subjectINSTITUTIONAL INVESTORS
dc.subjectINTEREST RATES
dc.subjectINTERNATIONAL BANK
dc.subjectINTERNATIONAL SETTLEMENTS
dc.subjectINVESTING
dc.subjectINVESTMENT CHOICE
dc.subjectINVESTMENT DECISION
dc.subjectINVESTMENT DECISIONS
dc.subjectINVESTMENT OPPORTUNITY
dc.subjectINVESTMENT PROJECTS
dc.subjectINVESTMENT RATE
dc.subjectINVESTMENT RETURN
dc.subjectINVESTMENT STRATEGY
dc.subjectIPO
dc.subjectLIQUIDITY
dc.subjectMACROECONOMIC VARIABLES
dc.subjectMARKET COMPETITION
dc.subjectMARKET DATA
dc.subjectMARKET EFFICIENCY
dc.subjectMARKET INDEX
dc.subjectMARKET INFORMATION
dc.subjectMARKET PARTICIPANT
dc.subjectMARKET PARTICIPANTS
dc.subjectMARKET POWER
dc.subjectMARKET PRICES
dc.subjectMARKET STOCK
dc.subjectMARKET VALUE
dc.subjectNASH EQUILIBRIUM
dc.subjectNEW PRODUCTS
dc.subjectNPV
dc.subjectOPEN MARKET
dc.subjectOPTIMAL INVESTMENT
dc.subjectOPTIMIZATION
dc.subjectOUTPUT
dc.subjectPERFECT INFORMATION
dc.subjectPOLITICAL ECONOMY
dc.subjectPRICE ADJUSTMENT
dc.subjectPRICE EFFECT
dc.subjectPRICE MOVEMENTS
dc.subjectPRIVATE EQUITY
dc.subjectPRIVATE EQUITY INVESTOR
dc.subjectPRIVATE SECTOR DEVELOPMENT
dc.subjectPRODUCT MARKET
dc.subjectPROFIT MAXIMIZATION
dc.subjectPROFIT MAXIMIZING
dc.subjectPROFITABILITY
dc.subjectPUBLIC EQUITY
dc.subjectREGULATORS
dc.subjectRETURN
dc.subjectRETURNS
dc.subjectRISK NEUTRAL
dc.subjectSALES
dc.subjectSECONDARY MARKET
dc.subjectSECONDARY MARKETS
dc.subjectSECURITIES
dc.subjectSECURITIES MARKET
dc.subjectSHARE PRICE
dc.subjectSHARE PRICES
dc.subjectSHARES OUTSTANDING
dc.subjectSHORT SELLING
dc.subjectSPECULATOR
dc.subjectSPECULATORS
dc.subjectSPREAD
dc.subjectSTOCK MARKET
dc.subjectSTOCK MARKETS
dc.subjectSTOCK PRICE
dc.subjectSTOCK PRICES
dc.subjectSTOCK RETURN
dc.subjectSTOCK RETURNS
dc.subjectSTOCKS
dc.subjectSUPPLY CURVE
dc.subjectSUPPLY SHOCK
dc.subjectSYNCHRONOUS STOCK PRICE MOVEMENTS
dc.subjectTRADES
dc.subjectTRADING ACTIVITY
dc.subjectTRADING COST
dc.subjectTRADING COSTS
dc.subjectTRADING VOLUME
dc.subjectUNEMPLOYMENT
dc.subjectUNINFORMED TRADERS
dc.subjectVALUATION
dc.subjectVALUATIONS
dc.subjectVALUE OF ASSETS
dc.subjectVOLATILITY
dc.titleStrategic Information Revelation and Capital Allocationen
dspace.entity.typePublication
okr.crossref.titleStrategic Information Revelation and Capital Allocation
okr.date.disclosure2014-07-01
okr.date.doiregistration2025-04-10T11:01:12.706600Z
okr.doctypePublications & Research::Policy Research Working Paper
okr.doctypePublications & Research
okr.docurlhttp://documents.worldbank.org/curated/en/2014/07/19902948/strategic-information-revelation-capital-allocation
okr.globalpracticeMacroeconomics and Fiscal Management
okr.globalpracticeFinance and Markets
okr.globalpracticeFinance and Markets
okr.globalpracticeTrade and Competitiveness
okr.guid265991468325778363
okr.identifier.doi10.1596/1813-9450-6995
okr.identifier.externaldocumentum000158349_20140731094543
okr.identifier.internaldocumentum19902948
okr.identifier.reportWPS6995
okr.language.supporteden
okr.pdfurlhttp://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2014/07/31/000158349_20140731094543/Rendered/PDF/WPS6995.pdfen
okr.sectorFinance :: Banking
okr.sectorFinance :: Housing finance and real estate markets
okr.sectorFinance :: Micro- and SME finance
okr.themeFinancial Consumer Protection and Financial Literacy
okr.themeFinancial and private sector development :: Small and medium enterprise support
okr.topicMacroeconomics and Economic Growth::Investment and Investment Climate
okr.topicMacroeconomics and Economic Growth::Markets and Market Access
okr.topicEconomic Theory and Research
okr.topicPrivate Sector Development::Emerging Markets
okr.topicFinance and Financial Sector Development::Debt Markets
okr.unitFinance and Private Sector Development Team, Development Research Group
okr.volume1 of 1
relation.isSeriesOfPublication26e071dc-b0bf-409c-b982-df2970295c87
relation.isSeriesOfPublication.latestForDiscovery26e071dc-b0bf-409c-b982-df2970295c87
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