Scandinavian Working Papers in Economics

Ratio Working Papers,
The Ratio Institute

No 121: A Methodological Note on Measuring the Functional Efficiency of Capital Markets

Johan E. Eklund () and Sameeksha Desai ()
Additional contact information
Johan E. Eklund: Jönköping International Business School and The Royal Institute of Technology, Postal: Jönköping International Business School, P.O. Box 1026, 551 11, Jönköping, Sweden
Sameeksha Desai: Max Planck Institute of Economics, Postal: Max Planck Institute of Economics, 10 Kahlaischestrasse, Jena, 07745, Germany

Abstract: We apply the accelerator principle to measure the functional efficiency of capital markets. We estimate the elasticity of capital with respect to output using a panel of firms across 44 countries, and compare the results with existing approaches. Furthermore, we correlate our measure with corporate governance institutions.

Keywords: Allocation of capital; accelerator principle; functional efficiency:

JEL-codes: C00; G32; P00

10 pages, May 12, 2008

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