Does corporate governance play any role in investor confidence, corporate investment decisions relationship? Evidence from Pakistan and India

Abstract

Investment decisions plays vital role in achieving the firm’s strategic plan. Due to the involvement of large amount of money, these decisions are most critical for all the stakeholders. This paper investigates the impact of corporate governance and investor confidence on the corporate investment decisions. Firms listed in Pakistan Stock Exchange and Bombay Stock Exchanges are taken as sample. Time period is 2008–2017. Investor confidence has been measured using Investor Sentiment Index (ISI) developed by Persaud. Our findings confirm that there is a significant impact of investor confidence on corporate investment decisions in both countries. Our findings also imply that the investment level is higher in the firms with good corporate governance practices. Corporate governance exaggerates the impact of investor confidence on corporate investment decisions. Good corporate governance practices improve board members’ monitoring function, hence moderately control shareholders’ interests, therefore firm managers make decisions effectively. However, in the presence of rigorous corporate governance practices, the impact of investor confidence on corporate investment is mitigated.