Corporate Investment Decisions Research Articles

Value relevance of accounting numbers and sustainability information in Europe: Empirical evidence from nonfinancial companies

Information is considered value relevant when used by financial markets in equity valuation and is reflected in market values. The value relevance of different information, such as accounting numbers, changes according to shifts in investors’ needs. Given the rising importance of environmental and social agendas for policymakers and practitioners, this study examines whether accounting numbers have lost explanatory power and sustainability information has become value relevant. The analysis focuses on 3,025 nonfinancial companies operating in the eurozone from 2005 to 2020. This study makes several contributions to the extant literature. First, analyzing the trend in the value relevance of financial accounting numbers, the results point to an overall decrease in the explanatory power of book values and earnings, particularly for environmental, social, and governance (ESG)-rated companies. However, the results indicate that ESG ratings have not gained value relevance over time. These findings have important implications for policymakers and practitioners. In line with the concept of “double materiality,” implementing ESG agendas will be possible only by redirecting corporate investment decision and increasing awareness of sustainability issues. This paper documents that such a shift has not yet been accomplished, despite the increasing commitment of the European Union to the ESG agenda.

The Impact of Energy-Related Uncertainty on Corporate Investment Decisions in China

This study investigates the impact of the Energy-related Uncertainty Index (EUI) on corporate investment among Chinese non-financial listed companies, focusing on two aspects: the effect of EUI fluctuations on investment behavior, and its differential impact on energy versus non-energy sectors. Utilizing a dataset of 2487 firms from 2007 to 2022, encompassing 22,346 firm-year observations, our analysis reveals that a 1% increase in the EUI leads to a 0.045% decrease in overall corporate investment. Notably, this effect is more pronounced in energy-related firms, where a 1% increase in EUI leads to a 0.057% reduction in investment. In comparison, non-energy-related firms exhibit a milder response, with a 1% increase in EUI resulting in a 0.026% decrease in investment. Given the average annual change in EUI over the sample period [2007–2022] of 27.710%, a 0.045% decrease in investment implies a substantial 1.246% per annum change in investment. This highlights the economically significant impact of EUI fluctuations on corporate investment decisions, particularly during periods of heightened uncertainty. These findings, validated through alternative EUI measures and investment metrics, provide crucial insights for understanding investment behavior under energy uncertainty. Conclusively, our study contributes to the literature by highlighting how energy uncertainty uniquely impacts corporate investment, taking into account the specific financial and operational conditions within different sectors. The findings highlight the importance of incorporating energy policy considerations into corporate strategic planning, particularly for energy-intensive industries within transitional economies like China.

Cash holding, economic uncertainty and investment: Evidence from ASEAN countries

This research observes the effect of uncertainty on corporate cash holding. Uncertainty drives up asymmetric information problems, increasing companies' external capital costs. As a result, companies prefer to accumulate cash to protect their investment capabilities in the future. The study uses a sample of non-financial public companies in six ASEAN countries, such as Malaysia, the Philippines, Thailand, Singapore, Indonesia, and Vietnam, from 2008 to 2021. The study uses a total of 34,359 firm-year observations. The research method employs a fixed-effect panel data model with Driscoll-Kraay standard errors. The findings of this study indicate that economic uncertainty can cause companies to accumulate their cash holdings. Furthermore, cash holding can reduce the impact of economic uncertainty on decreasing corporate investment decisions. This research contributes to the literature by showing the relationship between economic uncertainty, cash holdings, and corporate investment in the context of ASEAN countries.

Shanghai oil futures prices and firms' investment decisions: Evidence from Chinese manufacturing firms

International crude oil futures prices play a key role in market pricing, price discovery, and reshaping the market order. As the world's largest importer of crude oil, China urgently needs to establish contracts based on Asian supply and demand to mitigate currency risk for refiners and consumers. Against the backdrop of the launch of yuan-denominated crude oil futures by the Shanghai International Energy Exchange (INE) on March 26, 2018, this paper examines the impact of crude oil futures prices on the investment scale of Chinese manufacturing companies based on data from listed manufacturing companies in China from 2016Q1 to 2021Q3. The study finds that increases in international crude oil futures prices suppress the investment scale of Chinese manufacturing enterprises, while price volatility has a promoting effect. The listing of Shanghai crude oil futures has a negative shock effect on the impact of international crude oil futures prices on the investment scale of Chinese manufacturing enterprises. Additionally, increases in operational leverage amplify the negative impact of international crude oil futures prices on the investment scale of enterprises and weaken the positive impact of changes in international crude oil futures prices on the investment scale. Furthermore, among large manufacturing enterprises, volatility and increases in international crude oil futures prices suppress their investment scale; whereas in small and micro manufacturing enterprises, price increases and volatility significantly boost their investment scale. This paper provides empirical evidence and policy implications for fully leveraging Shanghai crude oil futures to optimize corporate investment decisions and support the sustainable development of enterprises.

Big data application and corporate investment decisions: Evidence from A-share listed companies in China

Based on a natural language processing (NLP) method and annual reports from A-share listed companies in China from 2011 to 2020, this paper constructs a big data index for the corporate level and studies the impact of big data on corporate investment decisions. The study finds that big data significantly improves corporate investment decisions. From the perspective of index decomposition, data mining and mobile service are found to significantly improve corporate investment efficiency, while algorithm development and intelligent manufacturing mainly enhance the corporate investment level. The study also notes that heterogeneity may exist due to differences in financial, innovation, and legal environments. In terms of mechanisms, big data can positively influence corporate investment decisions by improving R&D investment and reducing transaction costs.

Institutional attention and investment efficiency

AbstractThis study investigates how institutional investors' attention on the earnings announcement day affects corporate investment decisions. I find that the investment of firms receiving abnormal institutional attention is approximately 1.8 times more sensitive to their stock price than that of others. This effect is more pronounced when institutional investors have greater incentives to produce information and when corporate managers have greater incentives and capability to employ the incremental information contained in the stock price. These findings suggest that attention encourages institutional investors to incorporate private information into stock prices, which provides a useful guide for managers' investment decisions.

Do other firms’ stock price crashes affect corporate investment decisions within the business group: Evidence from Korean Chaebols

This research investigates the nexus between stock price crashes and subsequent investment behavior within business conglomerates, specifically Korean Chaebols. Utilizing an extensive dataset of affiliated firms from 2005 to 2020, we find that stock price crashes in one firm negatively influence the investment activities of its affiliated counterparts within the same Chaebol. The evidence elucidates spillover effects and heightened risk aversion among these firms, particularly in volatile market conditions. These findings underscore the imperative for vigilant risk management and proactive investment strategies to counteract the cascading impact of stock price crashes within Chaebol ecosystems.

Empirical Evidence of ESG Disclosure's Impact on Corporate Investment Decision in Indonesia

The purpose of this study is to investigate the impact of environmental, social, and governance (ESG) disclosure on corporate investment decisions. Data were collected from annual reports of firms listed in Indonesia Stock Exchange between 2015 and 2020 (378 firm-year observations). Using Ordinary Least Square (OLS) and fixed effect estimation, this study found that the dimension of ESG practices positively affects corporate investment decisions. In addition, the presidential election periods increase the effectiveness of corporate investment decisions. The study results reveal that uncertainty in the economic and business environment over the impact of general elections increases the company's ability to generate higher investments. This study contributes to the company strategic alignment to justify management about investment prioritize in the stakeholder wealth through ESG disclosure.

Antigambling interventions and corporate financialization: Evidence from China

This study investigates the impact of local antigambling interventions (AGIs) on corporate financialization. From the perspective of formal institutions’ influence on culture, our findings suggest that firms located in regions with more effective AGIs exhibit lower levels of financialization. Mechanism tests show that AGIs reduce local risk preferences, subsequently influencing corporate financialization. Heterogeneity tests reveal that the main results are more pronounced when government trust is stronger, cultural transmission efficiency is higher, local firm interactions are more extensive, and community attention to antigambling initiatives is greater. This study enhances the understanding of the influence of the institutional environment on corporate investment decisions.

Peer digitalization and corporate investment decision

The degree of digital transformation within enterprises in the same industry can produce spillover effects, thereby affecting other enterprises within the industry. This paper constructs an empirical model to test the impact of peer digital transformation on corporate investment decisions. The research results indicate that peer digitalization can significantly improve the efficiency of corporate investment decision-making. Further research finds that this significant promotional effect is more evident in non-state-owned enterprises and manufacturing companies.

Short-Selling on Corporate Investment: Korean Evidence

Purpose: Prior studies suggest that an informative stock price helps corporate investment decisions. Since short-selling improves the informativeness of stock prices, short-selling could influence corporate investment. This study examines this conjecture.
 Design/methodology/approach: Using KOSPI-listed firm data, this study examines whether short-selling affects quantitative aspects, that is, amount, and qualitative aspects, that is, risks and profitability, of R&D or capital expenditure.
 Findings: The results show a distinct contrast between the two types of investment. After short-selling, a decrease in R&D investment i s observed; however, capital e xpenditure i ncreases i n firms that i nvest much i n capital expenditure. A post-short-selling increase in R&D increases firm risk, but capital expenditure does not. Post-shortselling R&D investment is tied to long-term profitability; however, except for large firms, capital expenditure does not contribute to the increase in long-term profitability.
 Research limitations/implications: This study provides supporting evidence that improved informativeness of stock prices improves investment efficiency, not only through R&D investment but also through capital expenditure. However, by examining the topic in the big picture, this study leaves out the influence of several factors that can affect investment decisions.
 Originality/value: This is one of the rare studies that examines the real impact of short-selling.

Killing Growth: Homicides and Corporate Investment in Brazil

We examine the effects of violent crime on corporate investment and financing decisions of Brazilian firms. Exploring city variation in homicides, we find that an increase in the growth rate of homicides is associated with significantly lower corporate investments, with lower labour investments, and with a higher likelihood of layoffs. Spikes in violent crime are also associated with more conservative financing policies, reflected in higher cash holdings, in lower R&D (research and development) expenditures, and in lower dividend payments. Homicides further affect investment efficiency and financing choices, decoupling investment from debt finance and profitability. Moreover, the negative association between homicides and investment is significantly stronger in smaller firms, which highlights the uneven costs of violent crime in reducing firm growth.

Corporate investment sensitivity to equity market misvaluation

PurposeThe purpose of this paper is to investigate the effect of equity market misvaluation on manager behavior. Using a sample of 535 French-listed over 2000–2018, the authors analyze whether corporate investment decision is sensitive to equity market overvaluation.Design/methodology/approachThe study adopts market-to-book (M/B) decomposition developed by Rhodes-Kropf and Viswanathan (2004, RKV) that proxies for market misvaluation at the firm and industry levels. The authors conducted a long-term performance analysis via a portfolio sorting procedure and a Carhart (1997) four-factor pricing model. The authors tested the relationship between equity misvaluation, corporate investment decisions and equity issuance. The authors ran several robustness tests.FindingsThe empirical results show that equity market misvaluation affects corporate investment positively as the stock price deviates further away from its fundamental. Based on market timing theory, the authors find that corporate investment occurs in periods of high valuation motivated by equity issuance to benefit from the low cost of capital. This effect is more prominent for financially constrained firms. Consistent with the catering channel, the authors find that the misvaluation-investment nexus is more pronounced in firms with short-horizon investors. By examining the stocks’ long-term performance of misvalued firms, via a sorting portfolio procedure, the authors find that undervalued firms outperform and generate higher abnormal returns (Jensen’s alpha) than overvalued firms, suggesting that mispricing-driven investment appear to be short-lived and lead to lower return in the long term.Practical implicationsCorporate decision-makers and governance structures should pay attention to the rationality of the corporate investment decision in the context of equity market misvaluation. Managers who focus on maximizing the stock market value in the short-run at the expense of its long-term performance must give preference to value-creating investment, not driven by an external mechanism such as equity market mispricing. More generally, investors and portfolio managers must take into account the market mispricing process in decision-making. Nonetheless, from the portfolio sorting perspective, decision-makers must act in terms of high governance quality to mitigate suboptimal investment due to stock market mispricing (Jensen, 2005). Finally, equity market overvaluation, leading managers to invest via equity financing in particular, should be a signal to attract investors’ attention to seize the window of opportunity and embark on a short-term portfolio strategy. Such a strategy promises high returns in the short term.Originality/valueThis paper investigates jointly two theoretical channels: equity market timing and catering. The authors propose for the analysis three components of the M/B decomposition to dissociate market misvaluation at the firm and industry level from the fundamental component of market value (growth). This procedure provides a better understanding of the role of firm and industry misvaluation in explaining corporate investments. The authors provide evidence of the equity market misvaluation via a portfolio sorting procedure and a Carhart (1997) four-factor pricing model. The authors examine the effect of misvaluation on both the investment and the financing decisions.

Financing constraints and corporate investment decision: evidence from an emerging economy

PurposeExisting theories on the determining factors of corporate investment decisions raise the importance of financial market imperfections in explaining investment behavior. Many factors have been proposed as drivers of investment, mainly in developed economies, while emerging countries have almost been neglected. The main purpose of this study is to examine the effect of financing constraints on the investment behavior of a small context, namely, Jordan, with an imperfect environment.Design/methodology/approachThis study considers panel data regressions from the industrial companies traded at the Amman Stock Exchange with a total of 1,058 firm-year observations.FindingsThe results are able to demonstrate that business size, tangibility, market-to-book ratio, profitability, financial slack and leverage are major drivers of investment choices. The results support the importance of information asymmetry in explaining the investment behavior of firms. Nonetheless, the Q-theory is in place, as is firm agility.Practical implicationsPolicies to reduce information asymmetry are immediately needed to help firms increase investments by providing them with access to training, technology and market information. They also should enhance the firms’ opportunities for growth. Moreover, they should make it easier for businesses to access financial slack, such as by improving access to credit and financial institutions. They also can work to improve the financial infrastructure to meet the financing needs of businesses. Finally, smaller businesses should be assisted by improving their ability to invest and grow.Originality/valueTo the best of the authors’ knowledge, this is one of the first studies, if any, to investigate this issue in a distinct environment. Despite the unique characteristics of Jordan, the findings are applicable to other countries that experience comparable political and economic circumstances because Jordan has traits common to many emerging nations.

Targeted poverty alleviation and corporate investment in poor counties: an empirical analysis from the geographical distribution of new subsidiaries of listed firms

ABSTRACT Location is key to corporate investment decisions. Many studies have examined firms' investment in regions with sound institutional environments, but little is known about their investment in poor regions. This paper examines the impact of Targeted Poverty Alleviation (TPA) on firms’ investment in poor regions using listed firms from 2007 to 2021. It finds that TPA mainly guides resource-dependent and labour-intensive firms to invest in poor regions through subsidiaries. Further analysis shows that firms establish subsidiaries in poor regions actively, not passively motivated by administrative orders. The heterogeneity analysis shows that, the higher the land and labour prices in firms’ location, the more likely they are to establish subsidiaries in poor regions. Signalling and resource effects are the main drivers of firms’ investment in poor regions. This paper provides evidence for the effectiveness of TPA and implications for firms to achieve common prosperity..

Foreign economic policy uncertainties and corporate investments: Insights from Hong Kong

Our study reveals that corporate investment decisions in Hong Kong, a small open economy with a significant presence of multinational corporations, are largely and negatively influenced by economic policy uncertainties from foreign countries (foreign EPU). Furthermore, the adverse impact of foreign EPU on corporate investments is more pronounced in firms with extensive international operations. Our findings highlight the relevance of global uncertainties, implying that economic policy shocks in other parts of the world can have far-reaching effects on capital allocation decisions in the home country, and therefore, are consequential from the perspectives of both corporate managers and policymakers.

Research on the influence of equity incentive and internal control quality on company investment decision under the 14th five-year plan

ABSTRACT With the increasing intensification of market competition, companies need to implement innovative strategies to gain market advantages. As an effective measure for companies to reduce agency costs between management and shareholders and alleviate the conflict of interest between the two, equity incentive can directly affect the behaviour of company executives. Investment decision is the foundation of a company’s healthy growth and cash flow growth in the future. This paper selects the panel data of Chinese listed companies from 2011 to 2021 as a sample, uses the quality of internal control as an intermediary variable in the process of measuring the implementation of equity incentives, and empirically studies the relationship between equity incentives and corporate investment decisions. The results show that there is a positive correlation between equity incentives and investment decisions, and the quality of internal control plays an intermediary role between the two. Equity incentive can optimize the internal control, improve the quality of internal control, so as to effectively promote the investment decision of companies. The implementation of equity incentives gives companies a competitive advantage while also adding momentum to economic development, thereby enhancing national competitiveness.

Analysis of digital cloud accounting incorporating data mining technology in corporate investment decision making

Abstract This paper analyzes enterprise investment capability based on quantitative analysis under data mining technology and selects cash flow as the key indicator of enterprise investment to make a predictive analysis of enterprise cash flow. The system of enterprise investment capacity indicators is constructed, and the relationship between cash flow and each quantitative is analyzed by the regression model. The case analysis of the enterprise financing structure and the risk of bank financial indicators were conducted separately, and the results showed that the financing structure of enterprise A was dominated by long-term borrowing, which accounted for more than 60% every year, followed by bonds payable, which accounted for between 10% and 30% every year. The return on assets of Bank A is between 15% and 20%, much higher than the other two banks.

Risk without strike: Nuclear crisis and corporate investment

While prior works of literature have noted that a crisis brings in not only a strike but also risk, empirical studies on crisis management are largely focusing on the impact of the strike. In this study, we estimate the pure effect of disaster risk on corporate decisions by using the setting of the North Korea nuclear crisis, which brought risk but no actual strike to the neighboring countries. We find that the nuclear tests are significant events for corporate investments and the risk of these tests will lead firms to postpone their long-term investments. The negative impact spreads from the test site and dwindles when firms locate further away, and the geodesic distance rather than the driving distance to the test site matters. Our further analyses show that the negative impact on corporate investment decisions is channeled by the fear of environmental pollution, instead of the geopolitical concern like the outbreak of a war.

Retracted: Integrated Evaluation of Corporate Investment Decision Performance Based on Fuzzy Sets and BP Neural Networks

Retracted: Integrated Evaluation of Corporate Investment Decision Performance Based on Fuzzy Sets and BP Neural Networks