Creative Destruction and Stock Price Informativeness in Emerging Economies

Dai, Shangze and Fan, Fei and Zhang, Keke (2022): Creative Destruction and Stock Price Informativeness in Emerging Economies.

Abstract

It is generally accepted that creative destruction can increase stock price informativeness, for innovative companies tend to behave more surprisingly. However, we believe the rising of stock price informativeness by enterprise innovation in emerging or developing markets is, in some sense, the result of executive ownership and insider trading. To investigate our proposition, we build a rational expectation framework model and define stock price informativeness (SPI) as the Kolmogorov-Smirnov distance between expected distribution and actual distribution of stock prices. Then we use Chinese listed company data to perform benchmark and mediation effects regressions, along with instrumental variable regression in the empirical sector. After that, we use Thailand and Indonesia listed company data for robustness tests. Finally, we divide Chinese listed companies into developed-economy funded and others to do grouping regression. The main conclusion is: Creative destruction can raise stock price informativeness, while executive ownership plays a partial mediating effect in the path of such influence. However, that mechanism is not significant when we use developed-country-funded enterprises listed in China as the sample for regression. Thus, the effects of creative destruction on stock price informativeness are uneven across countries, and executive ownership plays a vital role in that impact in emerging economies.

• Item Type: MPRA Paper
• Language: English
• Keywords: Stock price synchronicity; Enterprise innovation; Inside information; Executive ownership; Rational expectation
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services; G - Financial Economics > G3 - Corporate Finance and Governance; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill

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