Stock Market Information Production And Its Impact On The Company's Investment

With the consideration of information asymmetry caused by the high cost in obtaining information especially perspective information, this thesis investigates how the information production in the stock market impact corporate investment and resource distribution.EMH suppose there in no information asymmetry in the market and no cost in obtaining information. In fact, the secondary equity prices have an indirect signaling role but no direct allocative role. Considering such factors as information asymmetry and high cost of obtaining information, especially prospective information, we think even strong form efficient market doesn't imply economic efficiency. Therefore, we relax the assumptions of EMH, consider the uncertainty of prospective information production, invent a super-strong notion of efficiency and make a model of super-strong efficiency equilibrium.Supper-Strong Efficiency means that stock market can produce sufficient information and the profitability conveyed by stock price would make the capital flow to the most prospective field. We point out that only when there were effective incentive and restriction mechanism, which can induce both investors and managers to make an effort to produce information about potential project value and also induce manager to draw inferences from stock prices, could resources be allocated prospectively and the market be both informationally and economically efficient.Next, this thesis develops some practical proposition to test the theoretical model. Based on the information measurement of stock price published in authoritative economic journals and considering Tobin Q, cash flow, fundamentals, I choose the price-non-synchronicity in stock price as index of price informativeness in stock price and conduct the empirical analysis of the impact of stock market information content on corporate investment in china.The empirical analysis shows a rising trend of information content in China's stock market. As China's stock market normalization proceed the information content in stock price has more impact on corporate investment decision, though the mechanism of information production and resource allocation still need to be improved. I also find the information content in stock price has less significant impacton corporate investment decision compared with ROE. This reveals that the major price impact of stock market comes from market irrationality rather than information production. In China's stock market corporation owned companies seek profit maximization so the prospective information conveyed by their stock price volatility would impact their investment decision. While SOE do not seek profit maximization so most SOE would not consider the prospective information conveyed by stock price volatility and tend to over-invest.Based on theoretical and empirical analysis, I demonstrate China's stock market are far form a super strong market and try to explain why the information content in China's stock market are insufficient and why stock price has limited impact on corporate investment decision. Besides institutional defects, the theoretical model in this thesis believe the insufficient information production, weak managerial incentive and constraint and Institutional investors' inactive role in producing information are reasonable explanation.Finally, this thesis proposed the following practical policies: to improve information disclosure and increase the information content in stock market; to strengthen the government's duty in the market and reduce its excessive intervention; to develop effective managerial incentive and constraint mechanism; to encourage institutional investors to participate in the information production of the stock market actively; and to protect the interests of the public's investors as well.