Government governance, executive networks and corporate investment efficiency

2018 ◽  
Vol 8 (2) ◽  
pp. 122-139 ◽  
Author(s):  
Xin Jin ◽  
Junli Yu
Keyword(s):  
Design Methodology ◽  
Spillover Effect ◽  
Corporate Investment ◽  
Investment Behavior ◽  
Investment Efficiency ◽  
Conduction Path ◽  
Content Type ◽  
Informal Institution ◽  
Government Governance ◽  
Information Spillover

PurposeOwing to the importance of the investment behavior in China, the purpose of this paper is to find the influence of executive network and government governance on investment efficiency.Design/methodology/approachThe paper use China’s listed companies as sample to make an investment efficiency determinant model.FindingsIn this article, the authors find that larger executive network and higher government governance will lead to more corporate investment efficient. Furthermore, the informal institution – executive network, is not only an effective way to alleviate financing constraints, but also can solve underinvestment problem. While the improvement of local government governance can provide institutional protection, it will also be more conducive to restrain overinvestment behavior.Research limitations/implicationsThe authors have not explored conduction path. Especially, the authors have not examined whether information spillover effect or the release of resources constraints in executive network plays a more important role to ease investment insufficient.Originality/valueUnder the Chinese circumstance, relationship governance can not only promote companies to improve investment efficiency, but also provide an important guarantee for sustained macroeconomic growth.

Islamic banking and corporate investment efficiency: empirical evidence from Malaysia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Moncef Guizani ◽  
Ahdi Noomen Ajmi
Keyword(s):  
Empirical Model ◽  
Generalized Method Of Moments ◽  
Corporate Investment ◽  
Investment Efficiency ◽  
Islamic Banks ◽  
Agency Conflicts ◽  
Content Type ◽  
Listed Firms ◽  
Lower Effect

PurposeThe purpose of this paper is to examine whether and how Islamic banks' financing affects corporate investment efficiency.Design/methodology/approachTo achieve the research purpose, an empirical model was constructed to describe the relationship between Islamic banks' financing and corporate investment efficiency. The empirical model was tested through generalized method of moments (GMM) estimation technique using a panel data of 163 Malaysian listed firms for the period 2007–2017.FindingsThis study provides evidence that Islamic banks' financing plays an important role in enhancing investment efficiency and that this positive effect comes mainly from non-PLS contracts. Moreover, the results show that the effect of Islamic banks' financing in preventing suboptimal investments is stronger in the financial crisis period. The results also reveal that the contribution of Islamic banks' financing in reducing suboptimal investments is more prominent when firms face over-investment problems.Research limitations/implicationsThis research contributes to the debate on the financial implications of Islamic banks' financing modes by exploring their effect on corporate investment efficiency.Practical implicationsFrom a managerial perspective, the research findings are beneficial to Islamic bank managers to the extent that they highlight the role of Islamic financial contracts in improving corporate investment efficiency. In addition, the lower effect of PLS contracts on investment efficiency implies that policymakers in Malaysia should multiply their efforts to further expand the PLS financing.Originality/valueThis paper offers some insights on the role of Islamic banks' financing in mitigating agency conflicts and reducing asymmetric information problems. It is the first attempt focusing on the role of Islamic financing in fostering corporate investment decisions.

scholarly journals Does corporate investment efficiency affect corporate disclosure practices?

2020 ◽  
Vol 21 (2) ◽  
pp. 309-327
Author(s):  
Noha Elberry ◽  
Khaled Hussainey
Keyword(s):  
Voluntary Disclosure ◽  
Corporate Investment ◽  
Good News ◽  
Investment Efficiency ◽  
Corporate Disclosure ◽  
Content Type ◽  
High Level ◽  
The Impact ◽  
Practical Implications ◽  
Disclosure Practice

PurposeThe authors examine the impact of corporate investment efficiency on corporate voluntary disclosure for a sample of UK non-financial companies.Design/methodology/approachThe authors use a sample of FTSE All-Share firms for the period of 2007–2014. Disclosure scores are collected from Corporate Financial Information Environment (CFIE). They follow Biddle et al. (2009) and Chen et al. (2011) in measuring corporate investment efficiency.FindingsThe authors find that high level of performance-related disclosure is associated with high level of corporate investment efficiency, while high level of good news information is associated with low level of corporate investment efficiency. They also find evidence on a bidirectional relation between disclosure and corporate investment efficiency.Research limitations/implicationsThe authors’ findings would be of importance to stakeholders and corporations. Stakeholders' investment decisions could be facilitated by understanding the disclosures provided by their firms and how these firms' performance is presented. Corporations become aware of the language which must be used to signal their performance.Practical implicationsCorporations become aware of the language which must be used in their disclosures. As firms may reflect their efficient investments but not in the form of good news in order to avoid revealing their competitive advantage to competitors.Originality/valueThis paper adds to disclosure studies by introducing a new variable, corporate investment efficiency, as a determinant of corporate disclosure practice.

The impact of board characteristics on corporate investment decisions: an empirical study

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ben Kwame Agyei-Mensah
Keyword(s):  
Regression Analysis ◽  
Board Of Directors ◽  
Investment Decisions ◽  
Corporate Investment ◽  
Independent Directors ◽  
Investment Efficiency ◽  
Content Type ◽  
Board Characteristics ◽  
The Board Of Directors ◽  
The Impact

Purpose The purpose of this study is to investigate the influence of board characteristics on firms’ investment decisions. Design Methodology Approach The study used data sourced from annual reports of firms listed on the Ghana Stock Exchange from 2014 to 2018. Descriptive analysis was performed to provide the background statistics of the variables examined. This was followed by a regression analysis which forms the main data analysis. Findings The multiple regression analysis results indicated that the proportion of independent directors and financial experts on the board are negatively related to firm investment. These findings imply that independent directors and financial experts on the board can help firms reduce overinvestment and improve investment efficiency. Originality Value The extant literature shows that the board of directors are an effective mechanism to reduce agency problems in firm decisions and operating performance. However, there has been little research on the role of the board of directors in corporate investment policy.

Corporate investment in social responsibility versus dividends?

2012 ◽  
Vol 8 (2) ◽  
pp. 199-207 ◽  
Author(s):  
Michel T.J. Rakotomavo
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Design Methodology ◽  
Corporate Investment ◽  
Cash Flows ◽  
Cost Of Equity ◽  
Content Type ◽  
Corporate Social ◽  
The Cost ◽  
Practical Implications

PurposeThe paper aims to examine whether corporate investment in social responsibility takes away from expected dividends.Design/methodology/approachThe article builds two hypotheses that are tested empirically through the analysis of 17,670 US firm‐year observations covering the period 1991‐2007. The tests are conducted in both univariate and multivariate settings.FindingsThe evidence supports the hypothesis that mature firms tend to invest more in corporate social responsibility (CSR). Specifically, firms investing highly in CSR tend to be larger, more profitable, and with greater earned (rather than contributed) equity. The evidence also supports the hypothesis that CSR investment does not subtract from dividends. Instead, CSR effort and dividend tend to increase together. Thus, CSR investment tends to be effected by companies who can afford it, and it does not lower value by lowering investors' expected payout.Practical implicationsThese results imply that spending resources on CSR does not lower the cash flows paid out to investors. When combined with the finding that CSR lowers the cost of equity, they also mean that CSR increases the value of a company's stock.Originality/valueThis is the first study that explicitly links CSR to the dividend flow.

How analyst recommendations respond to corporate uncertainty caused by investment behavior

2019 ◽  
Vol 10 (3) ◽  
pp. 243-269 ◽  
Author(s):  
Longwen Zhang ◽  
Minghai Wei
Keyword(s):  
Private Information ◽  
Conflicts Of Interest ◽  
Earnings Forecasts ◽  
Corporate Investment ◽  
Investment Behavior ◽  
Analyst Recommendations ◽  
Content Type ◽  
Information Transparency ◽  
And Performance ◽  
Earnings Forecasting

Purpose Corporate investment behavior increases the uncertainty of a company’s operation and performance. The purpose of this paper is to investigate how analyst recommendations respond to corporate uncertainty caused by investment behavior and what motivates analysts to react as they do. Design/methodology/approach The authors test two motivation hypotheses: the hypothesis that analysts are currying favor with management to obtain private information and the hypothesis that analysts have conflicts of interest due to connections. Using Chinese analyst-level data from 2007 to 2015, the authors find that overall investment levels, R&D investment and M&A events are significantly positively correlated with analyst recommendations, suggesting that analysts tend to react optimistically to corporate investment behavior. Findings Analysts are only optimistic about companies with low information transparency, suggesting that analysts may be trying to curry favor with management to gain access to private information. The authors find that analysts with stronger recommendations have more private information and analysts with more private information publish more accurate earnings forecasts, which supports the hypothesis that analysts curry favor with management through optimistic recommendations to obtain more private information. This is consistent with the logic that the difficulty of earnings forecasting increases under uncertain conditions, increasing the demand for private information. The authors then group the analysts according to their underwriting connections, securities company’s proprietary connections and fund connections, and find that the positive correlation between corporate investment behavior and analyst recommendations exists only in the unconnected groups. This is evidence against the hypothesis that analysts have conflicts of interest due to their connections. Originality/value First, the authors link the optimism of analysts with the uncertainty of analysts’ information inputs to partially unpack the black box of analysts’ analyses. Second, the authors test the two hypotheses mentioned. There is a lack of comparative studies on the influence of different motivations on the behavior of analysts.

scholarly journals Independent directors and corporate investment: evidence from an emerging market

2019 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Quoc Trung Tran
Keyword(s):  
Stock Exchange ◽  
Emerging Market ◽  
Corporate Investment ◽  
Independent Directors ◽  
Investment Efficiency ◽  
Firm Investment ◽  
Full Sample ◽  
Content Type ◽  
Research Findings

Purpose The purpose of this paper is to examine whether independent directors reduce corporate overinvestment and improve investment efficiency in an emerging market. Design/methodology/approach First, the author developed a research model in which corporate investment is a function of Tobin’s Q, the proportion of independent directors in the board and an interaction between them. Second, the author divided the full sample into groups of firms with a low- and high-financial constraint to compare the effects of independent directors between financially unconstrained and constrained firms. Findings With a full sample of 1,281 observations collected from 193 firms listed in Ho Chi Minh Stock Exchange during the period from 2009 to 2017, the author find that the proportion of independent directors is negatively related to firm investment but its interactive term with Tobin’s Q is positively related to corporate investment. These findings imply that independent directors can help firms reduce overinvestment and improve investment efficiency. Moreover, the research findings indicate that these effects of independent directors are stronger for financially constrained firms. Originality/value The extant literature shows that independent directors are an effective mechanism to reduce agency problems in firm decisions and operating performance. However, there has been no research on the role of independent directors in corporate investment policy.

Investment decisions and bank loan contracting

2017 ◽  
Vol 25 (2) ◽  
pp. 262-287 ◽  
Author(s):  
Wenxia Ge ◽  
Tony Kang ◽  
Gerald J. Lobo ◽  
Byron Y. Song
Keyword(s):  
Credit Risk ◽  
Investment Decisions ◽  
Institutional Ownership ◽  
Bank Loans ◽  
Bank Loan ◽  
Investment Behavior ◽  
Investment Efficiency ◽  
Content Type ◽  
Loan Contracting ◽  
Loan Spreads

Purpose The purpose of this paper is to examine how a firm’s investment behavior relates to its subsequent bank loan contracting. Design/methodology/approach Using a sample of US firms during the period 1992-2011, the authors examine the association between overinvestment (underinvestment) and three characteristics of bank loan contracts: loan spread, collateral requirement, and loan maturity. Findings The authors find that overinvesting firms obtain loans with higher loan spreads. Additional tests show that the effect of overinvestment on loan spreads is generally more pronounced in firms with lower reputation, weaker shareholder rights, and lower institutional ownership. The effect of overinvestment on collateral requirement is mixed, and investment efficiency has no significant relation to loan maturity. Research limitations/implications The results are subject to the following caveats. First, while the study provides empirical evidence that investment efficiency affects bank loan contracting terms, especially the cost of bank loans, the underlying theory is not well-developed. The authors leave it up to future research to provide a theoretical framework to clearly distinguish the cash flow and credit risk effects of past investment behavior from those of existing agency conflicts. Second, due to data limitation, the sample size is small, especially when the authors control for corporate governance measured by G-index and institutional ownership. Practical implications The finding that overinvestment is costly to corporations suggests that managers should consider the potential trade-offs from such investment decisions carefully. The evidence also alerts shareholders and board members to the importance of monitoring management investment decisions. In addition, the authors find that corporate governance moderates the relationship between investment decisions and cost of bank loans, suggesting that it would be beneficial to design effective governance mechanisms to prevent management from empire building and motivate managers to pursue efficient investment strategies. Originality/value First, the findings enhance understanding of the potential economic consequences of overinvestment decisions in the context of a firm’s private debt contracting. The evidence suggests that lenders perceive higher credit risk from overinvestment than from underinvestment, likely because firms squander cash in the current period by investing in (negative net present value) projects that are likely to result in future cash flow problems. Second, the study contributes to the literature on the determinants of bank loans by identifying an observable empirical proxy for uncertainty in future cash flows that increases credit risk.

How important are early investment experiences on subsequent investment decisions? A laboratory experiment on asset allocation

2015 ◽  
Vol 41 (6) ◽  
pp. 582-590 ◽  
Author(s):  
Dimitra Papadovasilaki ◽  
Federico Guerrero ◽  
James Sundali ◽  
Gregory Stone
Keyword(s):  
Asset Allocation ◽  
Design Methodology ◽  
Investment Decisions ◽  
Portfolio Allocation ◽  
Investment Behavior ◽  
Content Type ◽  
Aggregate Shocks ◽  
Riskless Asset ◽  
Allocation Decisions

Purpose – The purpose of this paper is to examine the influence of early investment experiences on subsequent portfolio allocation decisions in a laboratory setting. Design/methodology/approach – In an experiment in which the task consisted of allocating a portfolio between a risky and riskless asset for 20 periods, two groups of subjects were confronted with either a market boom or bust in the initial four periods. Findings – The findings suggest that after controlling for demographic characteristics, the timing of a boom or bust during the investment lifecycle matters greatly. Subjects that faced a bust early in their investment lifecycle held less of the risky asset in subsequent periods compared to subjects who experienced an early boom. Originality/value – To the best of the authors knowledge this is the first laboratory study investigating the role of early aggregate shocks on subsequent investment behavior.

Advertising and pricing strategies for the manufacturer in the presence of brown and green products

Kybernetes ◽  
2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Dan Shi ◽  
Weijia Zhang ◽  
Guangyu Zou ◽  
Jinkun Ping
Keyword(s):  
Numerical Experiments ◽  
Design Methodology ◽  
Investment Efficiency ◽  
Green Product ◽  
Pricing Strategies ◽  
Green Products ◽  
Content Type ◽  
Advertising Strategies ◽  
Green Production ◽  
Joint Decisions

PurposeThe purpose of this paper is to explore the operation strategies of a manufacturer who produces brown and green product simultaneously.Design/methodology/approachThe authors establish three models to examine the joint decisions of pricing and advertising. Three advertising strategies are: non-advertising investment (NA), advertising investment for brown product (BA) and advertising investment for green product (GA).FindingsThe theoretical analysis shows that advertising investment can substantially increase the product greening level and manufacturer's profit. More importantly, we find that the GA strategy is more likely to be the best strategy as the advertising investment efficiency increases. The BA strategy is more likely to be preferred as the R&D cost increases. Finally, the modeling results are verified by numerical experiments, and more insights are obtained.Research limitations/implicationsThis paper considers the case in which a single manufacturer produces the brown and green product simultaneously. In fact, many manufacturers in the market produce brown and green product at the same time. Furthermore, in addition to advertising investment for brown product and green product, manufacturers can also invest in advertising for brands.Originality/valueThe paper contributes to the investigations on green production and advertising decisions of a manufacturer who produces brown and green products simultaneously.

Foreign ownership and investment efficiency: new evidence from an emerging market

2020 ◽  
Vol 15 (6) ◽  
pp. 1185-1199 ◽  
Author(s):  
Quoc Trung Tran
Keyword(s):  
Stock Market ◽  
Firm Size ◽  
Emerging Market ◽  
Corporate Investment ◽  
Foreign Ownership ◽  
Business Environment ◽  
Investment Efficiency ◽  
Foreign Investors ◽  
Content Type ◽  
Investment Opportunities

PurposeThis paper investigates the effect of foreign ownership on corporate investment efficiency in an emerging market.Design/methodology/approachThis paper employs the investment-investment opportunities sensitivity to proxy for investment efficiency. Corporate investment and investment opportunities are measured by capital expenditure and Tobin's Q respectively. Control variables include state ownership, firm profitability, cash flow, financial leverage, firm size, bank debt, asset tangibility and financial distress. The research sample includes 5,502 firm-years from 621 firms listed in Vietnamese stock market from 2007 to 2017.FindingsWe find that foreign ownership negatively affects corporate investment efficiency. Furthermore, we continue to examine the effects of foreign ownership with financially unconstrained and constrained firms that are classified based on the annual medians of Kaplan and Zingales (1997) score, firm size and dividend payout ratio. We find that the negative relationship between foreign ownership and investment efficiency is stronger in financially unconstrained.Originality/valuePrior research shows that foreign ownership is positively related to corporate investment efficiency. However, in Vietnamese stock market, foreign investors may prefer safe business activities as a response to uncertainty in the business environment, ineffective legislations on corporate governance and their informational disadvantage. Therefore, in this paper, we argue that foreign ownership negatively affects Vietnamese firms' investment efficiency. Risk-adverse foreign investors make firms lose some profitable investment opportunities and thus decrease their investment efficiency.

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