Three contributions on the informational effect of stock prices in business decisions.

Summary This doctoral work studies the "feedback" effect of financial information related to stock prices on managers' decisions. Specifically, I study whether and how managers actually learn new information from stock prices to guide their corporate decisions. My dissertation consists of three essays, each addressing a different aspect of this same topic. The first essay studies the link between the informational efficiency of the stock market and the level of real economic efficiency of the firm. In the first essay, I find that when stock prices aggregate a greater amount of useful information, managers' decisions about firms should be even more optimally efficient. The second essay studies whether managers seek to learn the information used by short sellers. Is studying stock prices in the presence of short sellers useful for firm decisions? In the second essay, I overcome empirical difficulties by exploiting a unique institutional feature in the Hong Kong stock market. I find that managers of "non-shortable" firms can take advantage of short sellers' information about industry economic conditions through the stock prices of other "shortable" firms in the same industry and use it in their corporate decisions. The third essay studies the actual effects of long option trading. In the third essay, I find that the introduction of a specific class of long-term options stimulates the production of long-term private information and thus leads to an increase in the informativeness of prices on the long-term fundamentals of firms. As a result, managers can extract more information from the stock price to guide their long-term investment decisions.