Do Stock Markets Value Efficiency?

An empirical model determining the relationship between changes in firm-level productivity and changes in firm value is estimated using an unbalanced panel of 706 public limited companies observed over the period 1996–2002. We find a positive relationship between efficiency and the market value of manufacturing sector firms controlling for traditional accounting measures of performance such as earnings per share and the return on capital employed. This evidence is consistent with the stock market valuing the adoption of better management practices that lead to better resource utilisation. By contrast, we find no such evidence for service sector firms.

[1]  A. Riahi‐Belkaoui.  Productivity, Profitability, and Firm Value , 1999 .

[2]  Otto Toivanen,et al.  Innovation and the Market Value of UK Firms, 1989-1995 , 2002 .

[3]  Peter J. Rousseeuw,et al.  Robust Regression and Outlier Detection , 2005, Wiley Series in Probability and Statistics.

[4]  D. Teece,et al.  DYNAMIC CAPABILITIES AND STRATEGIC MANAGEMENT , 1997 .

[5]  Michael Barrow,et al.  Efficiency Measurement in the Public Sector: An Appraisal , 1989 .

[6]  C. Lovell,et al.  A survey of frontier production functions and of their relationship to efficiency measurement , 1980 .

[7]  Moshe Buchinsky.  Recent Advances in Quantile Regression Models: A Practical Guideline for Empirical Research , 1998 .

[8]  M. C. Jensen,et al.  Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers , 1999 .

[9]  M. Brennan.  A NOTE ON DIVIDEND IRRELEVANCE AND THE GORDON VALUATION MODEL , 1971 .

[10]  W. Greene.  The Econometric Approach to Efficiency Analysis , 2008 .

[11]  S. Ray,et al.  Technical Efficiency and Stock Market Reaction to Horizontal Mergers , 2005 .

[12]  Gerald A. Feltham,et al.  Valuation and Clean Surplus Accounting for Operating and Financial Activities , 1995 .

[13]  Peter J. Rousseeuw,et al.  Robust regression and outlier detection , 1987 .

[14]  Andrei Shleifer,et al.  Value Maximization and the Acquisition Process , 1988 .

[15]  D. O'brien,et al.  A Fundamental Analysis Approach to Oil and Gas Firm Valuation , 2000 .

[16]  Joe Yagill.  On Valuation, Beta, and the Cost of Equity Capital: A Note , 1982, Journal of Financial and Quantitative Analysis.

[17]  G. Battese,et al.  Frontier production functions, technical efficiency and panel data: With application to paddy farmers in India , 1992 .

[18]  T. Kohers,et al.  Market perception of efficiency in bank holding company mergers: the roles of the DEA and SFA models in capturing merger potential , 2000 .

[19]  Terry G. Seaks,et al.  Functional Form in Regression Models of Tobin's q , 1993 .

[20]  E. H. Kim,et al.  ON THE EXISTENCE OF AN OPTIMAL CAPITAL STRUCTURE: THEORY AND EVIDENCE , 1984 .

[21]  R. Sickles,et al.  The Relationship Between Stock Market Returns and Technical Efficiency Innovations: Evidence from the US Airline Industry , 1998 .

[22]  A. Shleifer,et al.  Management Ownership and Market Valuation: An Empirical Analysis , 1988 .

[23]  Mike Wright,et al.  Management Equity Ownership, Debt and Performance: Some Evidence from UK Management Buyouts , 1992 .

[24]  The Underinvestment and Overinvestment Hypotheses: An Analysis Using Panel Data , 2003 .