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Managerial quality, financial structure and signalling: A test of pricing efficiency in the UK equity securities market
Author(s) -
Forker J. J.
Publication year - 1983
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090040410
Subject(s) - leverage (statistics) , equity (law) , shareholder , signalling , ordinary least squares , business , quality (philosophy) , stock (firearms) , test (biology) , economics , microeconomics , financial economics , finance , econometrics , corporate governance , computer science , mechanical engineering , philosophy , epistemology , machine learning , political science , law , engineering , paleontology , biology
This paper seeks to ascertain if stock market pricing procedures are operationally efficient in setting prices so as to discriminate against poor‐quality management. Signalling theory suggests management's leverage decision as the means by which managerial quality can be identified. Departures from average leverage, given firm characteristics, are interpreted as indicating managerial quality. Ordinary least‐squares regression analysis is used to identify these departures, and to test if shareholders' yields are responsive to them. The results are not always statistically significant, but do provide some support for the signalling hypothesis and for the efficiency of UK security pricing.