Investment Board Committee and Investment Efficiency in a Unique Environment

Abstract

ABSTRACT This study investigates the associations between investment efficiency and both the existence of a board investment committee (IC) and its expertise. Using a sample of industrial firms from six Gulf Cooperation Council (GCC) countries across the 2005–2018 period, we find that IC existence reduces both under- and overinvestment by these firms. We also find that financial expertise among committee members affects firms’ investment efficiency positively. These findings are consistent with the assertion that ICs assist with the monitoring and control of firms’ investments. We also find that ICs reduce over- and underinvestment in firms with high levels of foreign ownership concentration. Our finding that reliance on an investment committee enhances investment efficiency is consistent with the tenets of agency theory in firms dominated by government and family ownership structures. These results are robust to a battery of additional tests that use alternative measures of investment efficiency, and to tests for self-selection bias and endogeneity.