The Research Of The Effect Of Stock Price Informativeness On Firm Valuation

Stock price informativeness refers to the amount of firm-specific informationimpounded in stock prices, for investors on stock market trade on the basis of the firmspecific information, the stock price informativeness will affect firm value. What’smore, managers will learn firm specific information from the stock price to improvetheir investment decision and investment efficiency. Higher investment efficiencyoften means higher future cash flows in a rational asset pricing world, investors willassign a higher value to a firm with higher investment efficiency. This paper aims toexplore whether stock price informativeness has an effect on firm value and if it takeseffect through investment efficiency.Firstly, some related theories are elaborated, and this article analyses how stockprice informativeness influences the firm valuation.Secondly, the hypothesis is put forth based on the theories and analyses madebefore, which is stock price informativeness positively related to firm valuation. Inorder to testify the hypotheses, with R2、Tobin s Q and ROE as proxies of stock priceinformativeness、 firm value and investment efficiency respectively, this articlemakes some analyses by using the9047observations of companies listed on SHSEbetween1997and2011. In chapter3, this article testifies the positive correlationbetween stock price informativeness and firm valuation by descriptive statistics andunbalanced panel regression, the direction of causality is clarified by using explainingvariable lagged regression. What’s more, this article uses sub-sample regression andchanges the measure to examine the robustness of the results across sample periods.Then, with comparative analysis the article finds firms of high R2experiencesignificant underperformance in the long run. In chapter4, this article finds nosignificant correlation between stock price informativeness and investment efficiencyby comparison and regression, which implies stock price informativeness doesn’t takeeffect on firm value through investment efficiency.