Financial markets and the allocation of capital
Open accessAbstract
Financial markets appear to improve the allocation of capital. Across 65 countries, those with developed financial sectors increase investment more in their growing industries, and decrease investment more in their declining industries, than those with undeveloped financial sectors. The efficiency of capital allocation is negatively correlated with the extent of state ownership in the economy, positively correlated with the amount of firm-specific information in domestic stock returns, and positively correlated with the legal protection of minority investors. In particular, strong minority investor rights appear to curb overinvestment in declining industries.
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Financially developed countries allocate investment across industries more in line with growth opportunities than do financially undeveloped countries.
“Wurgler (2000) finds that financially developed countries allocate investment across industries more in line with growth opportunities in these industries than do the financially undeveloped countries.”
From Investor protection and corporate governance (2000) · cites this paper as Wurgler (2000)
Cites
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Financial intermediation and delegated monitoring
Diamond, D. W. (1984) · The Review of Economic Studies · doi:10.2307/2297430 · Cited by 8,476 · see citing works
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Investor protection and corporate governance
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (2000) · Journal of Financial Economics · doi:10.1016/s0304-405x(00)00065-9 · Cited by 6,848 · see citing works
“Using a sample of firms from 27 wealthy economies, LLSV (1999b) find that, other things equal, firms in countries with better shareholder protection have higher Tobin’s Q than do firms in countries with inferior protection.”
BackgroundMorck, R., Yeung, B., & Yu, W. (2000) · Journal of Financial Economics · doi:10.1016/s0304-405x(00)00071-4 · Cited by 3,335 · see citing works
Chapter 12 Finance and Growth: Theory and Evidence
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Does financial liberalization spur growth?
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Finance, Growth, and Inequality
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Ensemble system based on genetic algorithm for stock market forecasting
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- Authors
- Wurgler, J.
- Affiliations
- Yale University (US)
- Corresponding author
- Wurgler, Jeffrey
- ORCID
- Wurgler, Jeffrey
- Venue
- Journal of Financial Economics
- Publisher
- Elsevier BV
- Published
- 2000-01
- Volume
- 58
- Issue
- 1-2
- Pages
- 187-214
- ISSN
- 0304-405X (ISSN-L)
- OpenAlex
- W3122685622
- Cited by
- 1,974
- References
- 2
- Citations by year
- 2026: 60 · 2025: 73 · 2024: 79 · 2023: 102 · 2022: 73 · 2021: 89 · 2020: 84 · 2019: 82 · 2018: 80 · 2017: 84 · 2016: 71 · 2015: 88 · 2014: 105 · 2013: 107 · 2012: 86
- FWCI
- 265.88
- Type
- journal article
- Language
- en
- Open access
- hybrid
- doi.org
- Licence
- cc-by-nc-nd
- www.elsevier.com/tdm/userlicense/1.0/ (tdm)
- Locations
- Journal of Financial Economics (publishedVersion, cc-by-nc-nd)
- Topics
- Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
- Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
- Social Sciences › Economics, Econometrics and Finance › Finance › Finance, Markets, and Regulation
- Keywords
- financial market development, capital allocation efficiency, overinvestment, state ownership, minority shareholder protection, firm-specific information, stock returns, cross-national comparison
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