We examine the real effects of stock market efficiency by analyzing how noise in stock prices affects the efficiency of capital allocation. Using data from 42 countries and a long time-series, we find that the efficiency of capital allocation across firms (the sensitivity of corporate investment...

What factors determine a firm's cash holdings has been a popular topic of research in finance, especially in light of surging cash holdings by US corporations in recent years. The bulk of such research has focused primarily on firm-specific factors occasionally sprinkled with macroeconomic...