School of Business
632 School of Business Bldg
Seoul, Korea 03722
Institutional Affiliation: Yonsei University
NBER Working Papers and Publications
|December 2016||Why Does Capital No Longer Flow More to the Industries with the Best Growth Opportunities?|
with Dong Lee, 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...