Capital Investment Behavior Research Articles

The extended Grossman human capital model with endogenous demand for knowledge

This paper extends the Grossman human capital model by including endogenous demand for knowledge capital. Human capital investment behavior is modeled from the start of a person's life rather than only after she has acquired the optimal stock of knowledge capital or reached the mandatory schooling age. The general condition for the optimal knowledge capital stock and the optimal health capital stock is derived, and the conditions for an individual's choices of interior and corner solutions for learning time that increases knowledge capital stock are presented. The extended Grossman human capital model provides a theoretical basis for explaining and predicting the effects of economic conditions on educational attainment from a distinctive perspective based on the joint determination of health capital and knowledge capital.

Unveiling the Art and Science of Investment and Financing Decision Making

Purpose: This study explores the intricate dynamics of investment and financing decision-making, emphasizing the integration of qualitative judgment and quantitative analysis. The research investigates the foundational theories, empirical findings, and practical implications that shape these decisions, highlighting their significance in financial management and economic activities. Research Design and Methodology: The research employs a comprehensive literature review methodology, systematically analyzing existing scholarly works to identify themes, patterns, and relationships within the literature. This approach involves identifying relevant sources through extensive search strategies, critically evaluating the quality and relevance of the selected literature and synthesizing key findings and theoretical insights. Findings and Discussion: The study reveals that a complex interplay of theoretical frameworks and empirical evidence drives investment and financing decisions. The Modigliani-Miller theorem and the efficient market hypothesis provide foundational insights, while behavioral finance highlights cognitive biases that influence decision-making. Empirical findings emphasize the role of firm-specific characteristics and market conditions in shaping capital structure choices and investment behavior. Practical considerations, including managerial overconfidence and asymmetric information, further complicate these decisions. Implications: The insights from this research are valuable for practitioners, policymakers, and researchers. Understanding the multifaceted nature of investment and financing decisions can enhance financial management practices, inform regulatory frameworks, and guide future research directions. Integrating theoretical insights with empirical evidence and practical considerations enables stakeholders to navigate the complexities of financial markets, fostering informed decision-making and promoting sustainable economic growth.

Firm-level uncertainty and monetary policy transmission: analysis based on investment behavior and annual report text

The loose monetary policy has not translated into actual credit increments, and the real investment rate has declined. This paper extracts the level of policy uncertainty perception from enterprise management analysis and discussion based on text analysis methods to identify the investment intention of enterprises. It is found that enterprise uncertainty perception can weaken corporate investment intention, thus hindering the promotion of loose monetary policy on investment. On the one hand, this paper verifies that uncertainty perception can weaken the effectiveness of monetary policy implementation at the micro level of enterprises; On the other hand, this paper finds that merely being based on the financing constraint theory may not be able to explain the capital investment behavior of Chinese companies. It also requires examining the investment intentions of enterprises themselves, enriching the research conclusions of enterprise investment theory.

Sharia Stocks and Muslim Millennials Investors in Indonesia: Between Religious and Economic Motives

Purpose: The objective of this study was to explore why Muslim millennials in Indonesia prefer to invest in Islamic stocks on the Indonesia Stock Exchange (IDX). Theoretical framework: Muslim millennials prefer stock investments that align with religion and align with the consistency and moral integrity upheld by the Muslim community, including investing. Design/methodology/approach: This study was a qualitative research method with a case study approach. Data were collected through in-depth interviews with ten millennial Muslim investors who invest in Islamic stocks in the IDX. Data analysis was carried out using thematic descriptive analysis. Findings: The findings of this study suggest that millennial Muslim investors in Indonesia prefer to invest in Islamic stocks for the following reasons: adherence to Islamic values and beliefs, ethical investment, risk management, diversification, and the potential for better returns. Research, Practical & Social implications: We suggest further studies to include a case study of a more specific group of Muslim millennials to determine the influence of previous investment experiences, personal characteristics, and financial situation on their preferences in investing in Islamic stocks. In addition, it can also conduct comparative studies among several different countries or cultures to identify the factors that influence sharia stock investment decisions to provide a broader and representative picture. Originality/value: This study provides insights into the factors that drive millennial Muslim investors in Indonesia to invest in Islamic stocks. This study's findings could benefit investors, the capital market industry, and policymakers in developing targeted strategies to attract millennial investors. Additionally, this study contributes to the literature on the Islamic capital market and investment behavior in emerging markets

Assessing the Impact of COVID-19 on Corporate Investment Behavior

The current wave of COVID-19 outbreak has created new strategical challenges for policy officials of the industrial sector across the world. The effect of COVID-19 is more in developing economies where industrial sector is already struggling for its stability. This study introduces the impact of COVID-19 on the corporate investment behavior of non-financial publicly listed firms of Pakistan. To achieve the objective, we employ the panel data ranging from 2010 to 2020 and apply the difference-in-differences (DID) model to quantifies the empirical relationship. The outcomes of DID model suggest that the pandemic period and treatment have a significant and negative impact on corporate capital investment behavior. During pandemic spread period, the enterprises have limited their investment into fixed assets due to less productive use of such assets. Similarly, industries that exist in high-impact areas face a negative investment growth rate due to quarantine policy, fewer social movements, and high installing cost of new machinery. However, this negative effect diminishes across those firms that have a quick cash inflow rate and more availability of bank loans. These two factors serve as a financial setback against the adversities of pandemic. By drawing upon the empirical reasoning on the effect of COVID-19, this study also presents possible solutions to alienate unfavorable impacts of this pandemic. Current analysis can be considered as an early attempt towards investigating the consequences of COVID-19 on investment decisions of industrial sector.JEL Classification: G32: G31: G40: C33 Doi: 10.28991/esj-2021-SPER-11 Full Text: PDF

Earnings management and firms' investment behavior: The threshold effect of ROE

This paper, on the basis of a sample of Chinese listed firms, investigates the relationship between both real and accrual-based earnings management activities and firms' capital investment behavior. We apply the threshold model proposed by Hansen (1999) and find firms managing earnings can either over or underinvest, depending upon firms' return on equity (ROE) level. The study results show an inverted relationship between earnings management and firms' investment, which changes from negative to positive with ROE rising beyond certain threshold levels. We also find that the level of ROE affects whether managers use real and accrual manipulations jointly or as substitutes in affecting firms' investment. Our evidence is important because it sheds new light on the relationship between earnings management activities and firms' investment behavior by showing that ROE may act as an important determinant in this relationship. This finding has important implications for policymakers such as the Chinese Securities Regulatory Commission (CSRC) as it shows that the regulatory benchmarks they set may have a significant impact on firms' investment behavior.

Analysis of Factors Influencing Household Human Capital Investment Behavior in Conflict Zones: A Case Study of District Swat

Development of human capital, as part of public policy, is critical for sustainable socio-economic development of a country. This study analyzed the factors that influenced the household behaviour of spending on human resources in terrorism affected region of district Swat. The uniqueness of the current study is to study human capital behaviour in the study area. The econometric technique (OLS) was applied to analyze the data. The study found that there are direct and indirect relationship exists among the targeted variables. It was found that health and education status is negatively affected by the incidence of terrorism. The education system drastically affected and the enrolment rate at the primary, secondary and post-secondary levels have exceptionally declined because of the aftermath of terrorism episode between 2002 and 2016. Health, education facilities and infrastructure are deteriorating posing a threat to long term development. The effective policies of the Government (investment in human capital) and eradicating terrorism (military actions) is a demanding subject of matter for the sake of development in the area.

Investments in human capital: The evidence from China’s new rural pension scheme

Human capital accumulation is a radical cure for income inequality and poverty issues in the process of economic development. In addition to exploring the impact of education-related policies on human capital investment, many scholars have begun to pay attention to the spillover effect of non-education policies on human capital investment behaviors. In this paper, we investigate whether the New Rural Pension Scheme (NRPS) initiative has had an impact on human capital investment behavior in rural China. We use a China Family Panel Studies sample and apply propensity score matching and difference-in-differences methodologies to test for the causal effects of this reform initiative. The results show that NRPS has had a positive effect on households’ human capital investments. In particular, education expenditures on children aged zero to 16 years increased substantially as a result of NRPS, with a more substantial causal effect for girls and in wealthier provinces. The results should be of great interest to academicians and policymakers interested in public policy and development.

Skin in the Game: General Partner Capital Commitment, Investment Behavior and Venture Capital Fund Performance

Skin in the Game: General Partner Capital Commitment, Investment Behavior and Venture Capital Fund Performance

Capital Investment Behavior of Local Government in Regional Development Bank (BPD) in Indonesia

Capital investment of local government or long-term regional investment is a form of government program and one of the tools of regulating the regional fiscal. Local government investment in the form of direct investment is the capital investment in business entities which aims to increase regional economic growth, increase regional income, and improve the welfare of the community. Regional capital investment is a decision-making behavior to invest or not to invest in business entities to obtain dividends. The behavior of decision making requires Information on bank performance, knowledge of banking governance, and shareholder agreements with bank directors. This study aims to analyze performance behavior and investment of provincial government that affects the profit of regional development banks in Indonesia. The method of analysis is done using descriptive statistic and multiple linear regression. Multiple Linear Regression with dependent variable of regional development bank profit and independent variable consist of Bank size (SIZE), business risk of BPD bank (RISK_Bt), Capital Adequacy Ratio (CAR), Operational Cost to Operating Income (BOPO), Return of Equity (ROE), Interest Rate of Bank (INTEREST), Provincial Capital Investment to Bank BPD (PMD), Regional Minimum Wage (UMR), Initial Public Offering Dummy (DIPO), and Bank Business Target Dummy (DSARBISB). The result of descriptive statistical analysis concluded that the capital investment of 26 provincial governments in 26 regional development banks describes the varying bank performance caused by different bank sizes. The results of multiple regression analysis can conclude that all independent variables are able to both explain the dependent variable at a significant level of level below 1%, as well as individually ten independent variables that are statistically significantly different with zero at levels below 1%, below 5%, and below 10%.

Skin in the game: General partner capital commitment, investment behavior and venture capital fund performance

This paper examines the impact of general partners' (GPs) own investment (capital commitment) in the venture capital (VC) fund they manage on their investment behavior and fund performance. Using a unique dataset with detailed information on VC fund ownership structure, we find that GPs' capital commitment has an inverted U-shaped relationship with investment speed, investment distance, and industry specialization. GPs' capital commitment is also associated with greater exit success. These effects are more pronounced for VC funds with less monitoring by limited partners (LPs). Findings of this paper shed new light on the governance role of managerial ownership in the VC industry and on the GP-LP relationship.

A neural network analysis of the fixed capital investment behavior of regions of the Russian Federation

A neural network analysis of the fixed capital investment behavior of regions of the Russian Federation

Auditors and Client Investment Efficiency

ABSTRACT This study examines the relation between auditors and their clients' investment efficiency. We hypothesize and find that auditor characteristics that proxy for an auditor's knowledge and resources are associated with higher client investment efficiency, after controlling for the auditor's effect on financial reporting quality. This result is consistent with auditors providing informational advantages to their clients in a generalized investment setting. We find that this auditor effect is more pronounced for clients who have a higher demand for information as measured by client size, industry competition, and client complexity. The effect is also more pronounced for clients of longer-tenured auditors. Overall, the results suggest that auditors may be one component to the management information environment and, as such, appear to influence capital investment behavior. JEL Classifications: M4; M42. Data Availability: All data are publicly available.

Auditors and Client Investment Efficiency

This study examines the relation between auditors and their client’s investment efficiency. We hypothesize and find that auditor’s characteristics that proxy for an auditor’s knowledge and resources are associated with higher client investment efficiency, after controlling for the auditor’s effect on financial reporting quality. This result is consistent with auditor’s providing informational advantages to their clients in a generalized investment setting. We find that this auditor-effect is more pronounced for clients who have a higher demand for information as measured by client size, industry competition and client complexity. The effect is also more pronounced for clients of longer-tenured auditors. Overall, the results suggest auditors may be one component to the management information environment and as such appear to influence capital investment behavior.

Can improvements in schools spur neighborhood revitalization? Evidence from building investments

For most households in the U.S. the public school to which they send their children is tied to the geographic location of their home. Economic theory predicts that households take into account the quality of the public school when making residential decisions. A large body of literature has documented that school quality alters the demand for housing in a neighborhood as measured by the capitalization of school quality into house prices. Demand for schools may also affect the quality of the housing stock by creating incentives for property owners to better maintain their buildings and units. Exploration of this potential relationship has been absent from the discussion on how schools influence communities. I attempt to fill this gap through investigating the relationship between school quality and capital investments in the housing stock. To investigate whether a relationship exists between schools and property owner capital investment activity, I rely on detailed building level investment data in New York City as well as measures of school performance. I explore whether consistent measures of school performance are associated with higher levels of investment activity. To identify whether this relationship is causal, that good schools can spur investment activity, I incorporate a boundary discontinuity identification strategy. Further, I test whether households respond to changes in school performance, exploring whether improvements in test scores over a five-year period are associated with higher levels of residential investments. Finally, I control for differences in populations across attendance zone boundaries through incorporating information on the composition of students at each school. My results suggest a significant relationship between performance in math and English Language Arts and property owner capital investment behavior. In my preferred specification, I estimate that a one standard deviation improvement in test scores is associated with a 2.5 percent increase in dollars invested in a building.

Allocation effects of uncertainty on resources in Japan

This paper provides evidence of a negative association between macroeconomic uncertainty and the cross sectional dispersion of investment rate for a panel of Japanese manufacturing firms. We show that an increase in uncertainty leads to the narrowing of the cross section dispersion of investment rate and vice versa. This finding suggests that firms’ fixed capital investment behavior becomes more homogeneous in times of increased uncertainty.

Firm Network Position and Corporate Venture Capital Investment

This study investigates why some firms have been more likely to make corporate venture capital investments than others. We anchor this study within a social networks perspective and prior network research that shows that information about business practices diffuses unevenly through interlocking boards, thereby influencing the corporate adoption of novel business practices. Using annual data on interlocking boards and corporate venture capital investments for S&P500 companies for the years 1996–2006, we show that a firm's corporate venture capital investment behavior can be predicted by its cumulative access to information about corporate venture capital practices gained through interlocking boards.

Do stock prices influence corporate decisions? Evidence from the technology bubble

We study the capital investment, stock issuance, and cash savings behavior of non-tech manufacturers (old economy firms) during the 1990s technology bubble. Our empirical results show that high stock prices affect corporate policies because they relax financing constraints. During the tech bubble, constrained non-tech firms' investment responded strongly to “high stock prices” (specifically, the component of price that is not captured by fundamentals). They also issued stock in response to that overvaluation effect, saving part of the proceeds in their cash accounts. We find no such patterns for unconstrained non-tech firms, nor for tech firms. Our findings are not consistent with the notion that managers systematically issue overvalued stocks and invest in ways that transfer wealth from new to old shareholders. More broadly, they suggest that what appears to be overvaluation in one sector of the economy may have positive externalities for other sectors.

On the investment sensitivity of debt under uncertainty

We investigate the impact of debt on a panel of U.S. manufacturing firms' capital investment behavior as the underlying firm-specific and market-level uncertainty changes. Our estimates show that the influence of leverage on capital investment may be stimulating or mitigating depending on the effects of uncertainty.

On the sensitivity of firms' investment to cash flow and uncertainty

We investigate the analytical and empirical linkages between cash flow, uncertainty, and firms' capital investment behavior. Our empirical approach constructs measures of own- and market-specific uncertainty from firms' daily stock returns and S&P 500 index returns along with a CAPM-based risk measure. Our results indicate that even in the presence of important firm-specific variables, uncertainty is an important determinant of firms' investment behavior. Depending on the measure of uncertainty used, investment may be stimulated or curtailed by the effects of uncertainty on its own or through its interactions on cash flow. Copyright 2010 Oxford University Press 2009 All rights reserved, Oxford University Press.