Shortcomings of Firms’ Valuation in Financial Markets

In an efficient market, optimal allocation of capital to listed companies relies on precise public information on their future profitability. Market regulation enforces a wide disclosure of information in order to avoid insider trading so that this information becomes also available to competitors. As a result, managers are induced to limit public information and market participants have to make valuation decisions on the basis of a quite poor material. This may lead to financial bubbles or to financial restrictions to firms facing strategic competition. In order to avoid such shortcomings, a solution could be to rely on independent actors in charge of collecting confidential information and of making it available to all market participants in a synthetic way.