| Improving capital allocation efficiency is the core driving force to promote theupgrading of industrial structure and realize sustainable and healthy development of thenational economy. However, the sharp contrast between the high growth of economy, therapid development of stock market and the low level of capital allocation efficiency makesus ponder how long that growth and development can last? The current phenomenon of theslowdown of economy growth and the fluctuation at low level of stock price have alreadygiven warning, to improve and enhance the efficiency of capital allocation is extremelyurgent. What is the cause of the low level efficiency of capital allocation, how to guidecapital allocation of rationally and effectively, the existing researches lack of in-depthanalysis.In general commodity market, price, as a mechanism for collecting and processinginformation, is the basic means of allocating resources effectively. However, in stockmarket, stock price attempts to play the signal role in guiding capital allocation rationally,the size of company-specific information that stock price carries and transmits must beconsidered, which is the height of stock price informativeness. The higher the stock priceinformativeness is, the more company real value can be reflected, thus the capital allocationfunction of the stock price is more obvious. Transparent and reliable company-specificinformation is the key basis for investors to identify and filter the high quality company fortheir decision-makings. Therefore information transparency directly determines the size ofstock price informativeness. Hence, this paper holds that enhancing informationtransparency and stock price informativeness is the way to improve capital allocationefficiency.To solve the questions and verify the above logic, this paper first analyzes theconnotation of information transparency, stock price informativeness and capital allocationefficiency, and sets up the logical relationship between information transparency, stockprice informativeness and capital allocation efficiency using the industrial organizationtheory, capital allocation theory, efficient-market theory, asymmetry information theory andsignaling theory, that is information transparency affects capital allocation efficiencythrough two paths. On the one hand, information transparency directly improves capitalallocation efficiency in the process of reducing the degree of information asymmetry anddecreasing non-efficiency investment; on the other hand, information transparencyenhances stock price informativeness in the process of reducing the noise interference anddecreasing the costs of obtaining information, while stock price informativeness improves capital allocation efficiency in the process of reducing the moral hazard, adverse selectionand optimizing investment decisions. At the same time, this paper also briefly deduces theinternal logic between information transparency, stock price informativeness and capitalallocation efficiency using Cobb-Douglas production function. Under the foreshadowing ofthese theories, this paper statistical analyzes the annual change trend and industrycharacteristics difference of information transparency，stock price informativeness andcapital allocation efficiency using macro-statistics data and micro-enterprises data, and stepby step examines the internal logical relationship between information transparency, stockprice informativeness and capital allocation efficiency, specific conclusions andimplementation processes are as follow:Firstly, the capital allocation efficiency, information transparency and stock priceinformativeness of China’s manufacturing industry are at low level in general. This paperapplies the model which Wurgler (2000) develops to analyze the situation of China’smanufacturing capital allocation efficiency according to macro-statistics data andmicro-enterprises data. Base on macro-statistics data from1981to2008, this paper got thesame conclusion that China’s manufacturing capital allocation efficiency is at low level byusing least-square regression, fixed effects model regression, random effects modelregression and unrestricted model regression respectively, and also found that capitalallocation efficiency is low-level fluctuating between years and significantly differentbetween industries. Base on the data of listed companies from1997to2012, this papertakes the same methods as above, the conclusions is no significant difference with above byyear-over-year comparison and non-parametric test. Base on the data of listed companiesfrom2001to2012, this paper got the conclusion that the whole level of China’smanufacturing information transparency is not high by using the ranking of disclosurequality made by Shenzhen Stock Exchange, modified Jones model, DD model andmodified DD model respectively from two perspectives of information quality itself andearnings management, and also found that information transparency is low-level fluctuatingbetween years and significantly different between industries. Also base on the data of listedcompanies from2001to2012, this paper got the conclusion that the whole level of China’smanufacturing stock price informativeness is extremely low by using the privateinformation trading model suggested by Llorente et al.(2002).Secondly, information transparency has significant effect on the capital allocationefficiency. This paper carries out an empirical research by constructing the two models ofelastic coefficient of investment and cross terms, and examines the effect of informationtransparency on capital allocation efficiency from two perspectives of information qualityitself and earnings management. The results show that:(1) The ranking of disclosure quality made by Shenzhen Stock Exchange is positively correlated with capital allocationefficiency no matter in industry-level or company-level;(2) Earnings management, whichis measured by modified Jones model, DD model and modified DD model respectively, isnegatively correlated with capital allocation efficiency no matter in industry-level orcompany-level. And the result of cross terms model is more significant. Results suggest thatthe low level information transparency reduces capital allocation efficiency, therefore,improving the earnings quality and information transparency of listed companies is the keyto guide capital flowing effectively among the companies and industries and thereby toenhance the capital allocation efficiency.Thirdly, information transparency has significant effect on stock price informativeness.The analysis of literature and theory found price non-synchronicity that some scholars usedis not suitable for measuring stock price informativeness, so this paper carries out theempirical research by using the private information trading measure suggested by Llorenteet al.(2002) to measure stock price informativeness, which studied the effect of informationtransparency on stock price informativeness from two angles of information quality itselfand earnings management. The results show that:(1) The ranking of disclosure quality madeby Shenzhen Stock Exchange is positively correlated with stock price informativeness;(2)Earnings management, which is measured by modified Jones model, DD model andmodified DD model respectively, is negatively correlated with stock price informativeness,of which the modified DD model has the best powerful explanation. These results show thatlow level information transparency reduces stock price informativeness, hence, the key toensure investors to get fully company-specific information and improve stock priceinformativeness is controlling the accruals manipulation and enhancing the earnings qualityand information transparency.Fourthly, the effect of stock price informativeness on capital allocation efficiency issignificant. This paper carries out the empirical research also by constructing two models ofelastic coefficient of investment and cross terms, results show that stock priceinformativeness is positively correlated with capital allocation efficiency both inindustry-level and company-level. This suggests that low level stock price informativenessreduces capital allocation efficiency, therefore improving stock market informationenvironment and increasing information efficiency is an effective measure to enhancecapital allocation efficiency.Fifthly, stock price informativeness has part mediating effect in the influences ofinformation transparency to capital allocation efficiency. This paper analyzes mediatingeffects by using the procedure proposed by Wen Zhonglin et al.(2004) from twoperspectives of information quality itself and earnings management. whether from the perspective of direct or indirect, stock price informativeness both plays a significantmediation role. Further, comparing regression coefficients and statistics of different modelsfinds that the modified DD model is most beneficial to analyze the mediation role of stockprice informativeness.This paper not only finds the effective way to improve and enhance capital allocationefficiency, but also analyzes and verifies the path pattern and mechanism that informationtransparency affects capital allocation efficiency. Therefore, this paper has a certaintheoretical value and practical significance. According to the conclusions, this paper putsforward some suggestions that transform government functions in the stock market,cultivate competent institutional investors and securities analysts, fully protect the rightsand interests of investors, take dual measures to improve information transparencyboth internally and externally, and realize the improvement of capital allocation efficiencyand the upgrading of industrial structure.
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