Equity Market Fragmentation and Capital Investment Efficiency

Date
2021
Authors
Pan, Jing
Landsman, Wayne
Stubben, Stephen
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract
This study examines how equity market fragmentation affects firms’ capital investment decisions. Recent empirical research finds that market fragmentation lowers trading costs and thus improves market quality. We examine whether this increase in market quality translates into greater revelatory price efficiency, where stock prices reveal with greater precision information to managers and/or creditors about firms’ investment opportunities. Consistent with this notion, our findings reveal that the association between capital investment and investment opportunities is increasing in market fragmentation. Additional findings suggest that (a) market fragmentation increases revelatory price efficiency at least in part by encouraging information acquisition by equity investors and (b) the more efficient stock prices inform both managers and creditors about firms’ investment opportunities. Inferences based on difference-in-differences and instrumental variable tests are consistent with those based on our primary findings.
Description
Keywords
Equity market fragmentation, Information acquisition, Capital investment
Citation
Rights
Access Rights
Email libraryada-l@lists.hawaii.edu if you need this content in ADA-compliant format.