NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Dong Lee

Korea University Business School
523 Hyundai Motor Hall
Seoul, Korea 02841

E-Mail: donglee@korea.ac.kr
Institutional Affiliation: Korea University

NBER Working Papers and Publications

December 2016Why Does Capital No Longer Flow More to the Industries with the Best Growth Opportunities?
with Han Shin, René M. Stulz: w22924
With functionally efficient capital markets, we expect capital to flow more to the industries with the best growth opportunities. As a result, these industries should invest more and see their assets grow more relative to industries with the worst growth opportunities. We find that industries that receive more funds have a higher industry Tobin’s q until the mid-1990s, but not since then. Since industries with a higher funding rate grow more, there is a negative correlation not only between an industry’s funding rate and industry q but also between capital expenditures and industry q since the mid-1990s. We show that capital no longer flows more to the industries with the best growth opportunities because, since the middle of the 1990s, firms in high q industries increasingly repurchase sh...
 
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