#TencentMeeting: 655-102-006 Capital Allocation Efficiency and Firm Size
Present by Dr. Liang Ma
Abstract:
The extent to which capital is allocated to firms with more growth opportunities is an essential matter of economic efficiency. This paper uses a cross-country dataset and shows that small public firms are associated with investments that are less responsive to growth opportunities than large public firms. The lower capital allocation efficiency among small firms reflects that small firms are cutting fewer deteriorating investments and increasing fewer value-enhancing investments. The divergence in capital allocation efficiency among large and small firms is not due to the differences in growth opportunities, cash flows or external dependence between small and large public firms. Moreover, the financial market size is positively related to capital allocation efficiency only for large firms. In contrast, a more informative financial market is associated with higher investment sensitivity to growth opportunities for both small and large firms.
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