How do U.S. policymakers know if the nation’s capital markets are doing their job of allocating capital most productively across the economy? One way would be to see if these markets are allocating funds to firms and projects that boast the best growth opportunities. A financial system that provides capital to companies that are most likely to put it to good use is probably working well. A new paper presents some data that might make us think about how efficient U.S. capital markets are these days.

The paper, by economists Dong Lee of Korea University Business School, Han Shin of Yonsei University, and René M. Stulz of Ohio State University, was recently released as a National Bureau of Economic Research working paper. The research conducts a simple test of how the financial markets are doing by ascertaining whether industries that appear to have the best growth opportunities receive more funding. Specifically, they look at the correlation between an industry’s rate of funding and the industry’s average “q,” or the average ratio of the market value of firms in these industries to their “book value.” The higher the q ratio, the more likely these firms have opportunities to invest and grow.

Looking at data for public firms in the United States, the authors find that the correlation of funding and q is positive from the early 1970s to the mid-1990s. That’s true for funding from both equity markets and funding via bonds. A positive correlation would indicate that equity capital is flowing relatively more to companies that seem to have more investment opportunities, indicating that markets are allocating funds efficiently. But in the mid-1990s, the correlation with equity funding flipped. Industries with high q ratios—those that would seem likely to invest—were associated with lower rates of funding. However the correlations for bond financing remains positive.

What happened here? It appears that the switch is associated with an increase in share buybacks by companies. If companies that buy their shares back are excluded from the data, then a positive correlation between the industry q ratios and funding rates is positive from the 1970s to today. Looking more closely at the data, the firms that do share buybacks have high q ratios, but invest less. They also have high level of internal savings. If these firms already have robust retained earnings but are using the money to fund shareholder payouts, then it makes sense for markets to not send them more funds. There is some evidence that while credit financing may not have changed across industries over time, it does increasingly go toward shareholder payouts rather than investment.

In other words, the firms that appear to have investment opportunities either don’t actually have them or are not interested in taking advantage of them. These results are another indication that the relationships that once drove business investment seem to be totally broken. What’s behind that break is worth investigating.