Minority shareholder short-termism and investment inefficiency: evidence from the Chinese investor interactive platforms

This study investigates the impact of board governance mechanism on investment efficiency (IE) in PSX-listed firms. The study also examines the role of institutional ownership (IO) in board-IE relationships. In addition, we extend our analysis to re-examine this relationship by splitting the sample into two groups, i.e., the introductory phase of corporate governance (CG) i.e., 2004 to 2013, and revised codes of CG (2014 to 2018) to examine the impact of these separately on IE. The sample data comprises 155 non-financial PSX-listed firms from 2004 to 2018. IE is measured using firms’ growth opportunities. The random effect model is used to test the study’s hypotheses. A robustness test is also performed to validate the study’s findings. The paired-sample t-test results show a significant improvement in IE after revising the CG codes in 2012. According to the regression results, board size has a significant direct, whereas board diversity has a significant inverse effect on IE. Regarding moderating effect, IO was found to moderate the relationship between board independence and IE significantly. Furthermore, it was discovered that following the issuance of revised CG codes-2012, the level of board independence and diversity increased in PSX-listed firms; however, only diversity positively impacted IE, and board independence had no impact on IE from 2014 to 2018. Despite the issuance of revised CG codes-2012, the level of CG among PSX-listed firms is low, which is a source of concern for regulators such as the Securities and Exchange Commission of Pakistan.

Investment activities are the core components of a company's financial operations, and the efficiency of these investments can significantly impact the company's operational status, profitability, value creation, and future development. This article focuses on A-share listed companies, first analyzing the factors that influence the efficiency of corporate investments. It then explores the specific impact of equity concentration on inefficient investments. The study utilizes empirical analysis methods and data from A-share listed companies in non-financial industries from 2017 to 2020. The research concludes that there is a significant positive correlation between equity concentration and inefficient investments. To ensure the reliability of the empirical results, robustness tests were conducted on the sample regression results.

Due to the current favorable economic situation in our country, companies are expanding their distribution scope by acquiring other small and medium-sized enterprises, leading to the emergence of goodwill in mergers and acquisitions. Investment efficiency is also an essential indicator for companies as it reflects their return on investment. Therefore, this article aims to find the relationship between the two through literature analysis and empirical research. Firstly, the origin and evolution of goodwill and the factors related to investment efficiency were analyzed through past literature, and the relevant theories related to goodwill in mergers and acquisitions and investment efficiency were discussed. Subsequently, the reasons for setting up research hypotheses were explained, and the corresponding sample selection was briefly summarized. Through regression analysis of variables and robustness tests, two conclusions were drawn. First, goodwill in mergers and acquisitions increased a company's non-efficiency investment, thereby reducing investment efficiency. Second, the inclusion of audit quality in the variables weakened the impact of goodwill in mergers and acquisitions on a company's investment efficiency. Therefore, two policy recommendations were proposed: to reduce a company's goodwill in mergers and acquisitions and to choose audit firms with relatively higher audit quality.

This study examines the association between institutional investors' corporate site visits (CSVs) and the visited firms' investment efficiency. Using unique CSVs' data from China, this study provides empirical evidence that institutional investors' CSVs lessen the visited firms' corporate investment inefficiency, including both over‐ and underinvestment. The negative relationship between CSVs and investment inefficiency is less pronounced for firms with higher quality financial reporting and better corporate governance. In addition, CSVs show a decrease in corporate overinvestment by monitoring the risk‐taking activities of younger CEOs and expansionary firms, and supervising the use of excess free cash flows. Meanwhile, CSVs could mitigate underinvestment by reducing managerial shirking from entrenched CEOs, such as dual or longer‐tenured CEOs. The possible economic mechanism behind this association is that CSVs increase institutional shareholding percentages. All the main findings are robust to a battery of endogeneity and robustness tests.

PurposeThis study aims to analyse the effect of corporate governance on investment efficiency and the moderating impact of industry competition on the relationship between corporate governance and investment efficiency.Design/methodology/approachThe research sample includes a total of 36 publicly listed companies assessed by the Indonesian Institute for Corporate Directorship from 2012 to 2018. Testing is performed on full sample and overinvestment and underinvestment subsamples. Additional testing is further carried out using the generalized method of moments to address endogeneity problems and a robustness test is performed to assess the estimated investment efficiency.FindingsCorporate governance can increase investment efficiency and the effectiveness of corporate governance is found to drop when the level of industry competition is higher.Practical implicationsThe results of the present study corroborate the suggestion that companies need to implement corporate governance mechanisms. Furthermore, designing a corporate governance mechanism requires the scrutiny of the external environment, including industry competition.Originality/valueThe present study adds the profitability factor in the calculation of investment efficiency levels. This study also considers external factors that can influence the effectiveness of corporate governance in determining investment efficiency.

This study examined the association of accounting conservatism with investment efficiency, and its effects on investment efficiency by mitigating firms from under and over investments of listed companies in China (2002 to 2013). First, we find the existence of conservatism in accounting practices of Chinese firms, later to hypothesize that how conservatism improves investment efficiency to alleviate under or over investment stresses. Thus, our findings confirmed that accounting conservatism improves investment efficiency of Chinese firms by mitigating under (over) investments. Furthermore, significant correlation existed for investment efficiency with free cash flow and corporate governance such as CEO duality and percentage of board members. In robust test, we find conservatism reduces the CEO duality and top one shareholder tunneling effect which may cause agency problem.

Purpose This study aims to examine the joint effect of accounting background and cross-membership of Islamic Supervisory Board (ISB) members on bank investment efficiency. Design/methodology/approach This study uses data collected from 36 Islamic banks across 15 countries globally, spanning the period from 2012 to 2021. This research uses an ordinary least squares regression and a comprehensive set of endogeneity and robustness tests. Findings The findings show a negative relationship between the accounting background of ISB members and investment efficiency. However, when ISB members with accounting backgrounds also have ISB cross-memberships, the banks exhibit high investment efficiency. These results suggest that ISB cross-membership plays a crucial role in facilitating Islamic banks’ access to timely information on investment opportunities. This enables ISB members with accounting expertise to thoroughly assess the benefits and risks associated with their investment prospects. These findings imply that ISB members with accounting backgrounds and cross-memberships have greater motivation and thoughtful considerations for making better investment decisions. Consequently, Islamic banks are better positioned to undertake high profitable investment projects, which enhance their investment efficiency. Practical implications The current study holds immense value for Islamic bank management in their selection of ISB members who possess an accounting background and cross-membership. Originality/value This study delves into a comprehensive investigation of the proficiency, underlying principles and unique characteristics exhibited by ISB members with an accounting background. Moreover, this study acknowledges the burgeoning global prominence of Islamic banks.

Common institutional ownership and investment efficiency: Empirical evidence from China

Purpose The term “Insider CEO” refers to actor in the top management at corporate level who has the advantage of having better information regarding a company’s resources to make investment decisions. This study aims to examine the relationship between insider chief executive officers (CEOs) and investment efficiency in emerging economies. Design/methodology/approach The authors comprises sample of nonfinancial companies listed on the Indonesia Stock Exchange during the period of 2011–2021, using an archival approach through regression analysis. Findings This study demonstrates a significant negative relationship between insider CEOs and investment efficiency. In addition, audit quality as the firm audited by BIG4 accounting firm changes the direction of previously negative findings, turning them into significant positive relationships, and audit quality acts as a moderating factor on the insider CEOs and investment efficiency nexus. Furthermore, the authors conducted a series of endogeneity and robustness tests to strengthen the results of this study. Research limitations/implications This study offers new ideas in the investment literature and its practice in companies, where it highlights the role of the existence of an insider CEO in practice on investment efficiency. The authors provide recommendations to companies, potential investors and policymakers regarding the potential for insider CEOs to influence investment returns that tend to be less efficient. Therefore, this study proves that the presence of an insider CEO has a higher risk-taking preference, which has the potential to influence less efficient investment practices. Originality/value Several previous studies have focused more on the role of CEOs who come from outside the company and their impact on investment practices. However, it is not clear whether insider CEOs will influence the company’s investment efficiency practices driven by the perspective of “risk preferences and investment returns”. To the best of the authors’ knowledge, this is the first study to substantiate the role of CEOs based on their origin and their impact on less efficient investment practices.

This study examines the effect of control-ownership wedge (the difference between control rights and cash flow rights) on investment efficiency. Subsequently, the authors analyze how the level of foreign investor monitoring influences the association between control-ownership wedge and investment efficiency. The results of the analyses show that investment efficiency deteriorates as control-ownership wedge increases. This, in turn, suggests that when this wedge increases, agency problems and information asymmetry between controlling and minority shareholders become more severe. The authors also perform an analysis by dividing the samples into four groups based on foreign investor ratio from the least to the greatest. The result shows that control-ownership wedge deteriorates investment efficiency in the group with the least foreign investor ratio. The result reveals that foreign investor monitoring is effective corporate governance mechanism to monitor the controlling shareholders’ investment decisions. We also find that higher control-ownership wedge with over-investment tendency negatively affects firm performance, which implies an inefficient investment behavior. This result suggests that as controlling shareholders’ ownership increases, controlling shareholders becomes more and more reluctant to assume a loss of firm value as a result of reduced investment efficiency. This study provides additional evidence that the greater control-ownership wedge decreases investment efficiency, while recent studies on the relation between control-ownership wedge and investment efficiency suggest mixed evidence. In addition, the results show that foreign investors play an effective monitoring role when controlling shareholders are in position of exercising exclusive power. The results indicate the importance of external investors’ monitoring over investment decisions. Keywords: control-ownership wedge, foreign ownership, investment efficiency, over-investment, under-investment. JEL Classification: G32, M41

This paper selects relevant panel data of A-share listed enterprises from 2009 to 2021 to empirically test the impact of supply chain concentration on enterprises' inefficient investment, and deeply analyzes the specific impact mechanism. The research shows that the concentration of supply chain aggravates the overinvestment and underinvestment of enterprises, resulting in inefficient investment of enterprises. This conclusion is still valid after endogenous test and robustness test. Mechanism analysis shows that in the case of excessive investment, supply chain concentration exacerbates corporate financialization, reduces asset specificity, and leads to inefficient investment by enterprises; In the case of insufficient investment, supply chain concentration weakens corporate governance and reduces inventory turnover, leading to inefficient investment for enterprises. This inspires enterprises to increase their corporate governance capabilities, improve supply chain efficiency, promote rational asset allocation, and improve investment efficiency

This study explores the connection between the amount of cash a company holds and its effectiveness in making investments, as well as the effect of the COVID-19 pandemic. The researchers analyzed a dataset consisting of 2721 observations from Indonesian publicly listed firms between 2013 and 2020, excluding the financial industry (SIC 6). They utilized multiple linear regression analysis to investigate how cash holding influences investment efficiency and how the COVID-19 pandemic affects this relationship. The research approach employed was quantitative. The results indicate that a higher cash holding has a negative impact on investment efficiency. The uncertainty caused by the COVID-19 outbreak has significantly affected corporate cash flows, impeding business activities. Additionally, robustness tests were conducted to address concerns regarding potential bias, and the results consistently aligned with the ordinary least squares (OLS) estimation. These findings are significant for investors, potential investors, and management, providing insights into the interplay among cash holding, investment efficiency, and the COVID-19 Pandemic.

This paper demonstrates important interactions between dividend policy and investment efficiency. We find that dividend payout can improve investment efficiency, especially can mitigate over-investment. Prior research shows that dividend payout help mitigate over-investment problem (Biddle, Hilary, and Verdi, 2009). However, firms with low investment discretionary may be maturer, have rich cash flows, and prefer to issue dividends. We use a setting to solve this problem. In 2006, China Securities Regulatory Commission (CSRC) issues documents and declares that firms need to issue at least 20% of their net profit as cash dividends accumulatively in continuous three years before refinancing. In 2008, this rate increases to 30%. We find the negative effect of dividend on over-investment is more significant after 2006. Because this regulation is associated with refinancing, we use cross-sectional analysis to compare firms with and without refinancing activities. This can exclude the effect of the macroeconomic factors and other regulation factors. We find that firms with refinancing activities have negative effect on the depressant effect of dividend payout on over-investment. This effect is more significant after 2006. This mitigating effect is mainly affected by the shock in 2006, when the refinancing activities are first linked to a certain amount of dividend payments. Besides, we also find that the larger size of refinancing, the more negative effect on the depressant effect of dividend payout on over-investment is. Larger size of refinancing means that firms are more likely to have larger investment projects. Those kinds of firms really need cash to catch the investment opportunities. At that time, CSRC asks them to issue at least 20% of net profit as cash dividends can attenuate the over-investment more pronouncedly. These policy events provide exogenous shocks, which can attenuate the endogeneity concern. Our finding is consistent with prior the research (Biddle et al., 2009). It is robust when we use different model to estimate investment residual and after other robust tests. After analyzing, we can conclude that dividend payout can alleviate over-investment.

ABSTRACTThis study aims to establish a new measurement standard for quantifying Corporate Environmental Responsibility (CER) information and activities disclosed by enterprises and to examine the relationship between CER and investment inefficiency (IIE), with a specific focus on the mediating role of information asymmetry (IA). By analysing how CER influences IIE through information asymmetry, the study provides insights into how transparency and responsible environmental practices can enhance investment decisions and overall corporate performance. Regression analysis of 22,413 firm‐year observations from China A‐shares (2011–2021) shows that active CER disclosure effectively reduces IIE by mitigating information asymmetry, particularly moral hazard (MH) and adverse selection (AS). Robustness tests, including instrumental variable analysis, the Heckman self‐selection model, and Propensity Score Matching (PSM), consistently support these findings. The study also reveals that CER disclosures by non‐state‐owned enterprises (non‐SOEs) and enterprises less sensitive to environmental concerns (NES) significantly diminish IIE by addressing information asymmetry. This research underscores the need for enterprises to embrace environmental responsibility actively, encouraging proactive engagement and transparent disclosure of environmental activities and information.

PurposeThis study examines the non-linear effect of board independence on the investment efficiency of listed firms worldwide. This study further tests whether the COVID-19 pandemic, industry competition and economic development influence the relationship between board independence and investment efficiency.Design/methodology/approachThe data are retrieved from the Thomson Reuters (Refinitiv) database and include international data from 33 countries, comprising 21,363 firm-year observations. The authors' regression analyses include firm-specific variables as controls that may impact investment efficiency. The authors also perform various robustness tests including, alternative measures of investment efficiency, weighted least squares regression, quantile regression and endogeneity issues.FindingsThe results reveal a non-linear relationship between board independence and investment efficiency. Specifically, the relationship follows a U-shaped pattern, indicating that the negative impact of board independence on investment efficiency becomes positive after it reaches its optimal point, thus supporting optimal board structure theory. Interestingly, the authors find no significant evidence of board independence’s effect on investment efficiency during the pandemic. In contrast, the relationship between board independence and investment efficiency is significant only during the non-pandemic period. Furthermore, the authors discover evidence of a U-shaped relationship in both emerging and developed markets, as well as in industries with high and low competition.Research limitations/implicationsThe authors' study discovers new evidence on the non-linear impact of board independence on investment efficiency, which has not been explored previously in existing research.Practical implicationsThis study has practical implications for investors by emphasising the importance of corporate governance and the appointment of independent directors. Investors should consider the findings of this study when making decisions related to corporate governance, as they can impact a firm's investment efficiency.Originality/valueDespite a considerable body of literature exploring the link between corporate governance and investment effectiveness, there is a dearth of research on the non-linear effects of board independence. Furthermore, the effects of the COVID-19 pandemic, industry competition and economic development remain unexplored.