Corporate Investment Research Articles

Does the green finance policy affect the efficiency of corporate investment? Evidence from China's green finance reform and innovation pilot zones.

In the context of promoting the orderly expansion of capital investment and rational allocation of resources to achieve green and circular economic development. Green finance, as a new engine to promote the sustainability of enterprises, holds significant importance in exploring the positive effect of green finance policies on optimizing the investment decisions of enterprises and guiding them to efficiently utilize their resources to maximize value creation. Using A-share listed companies in Shanghai and Shenzhen from 2012 to 2022 as the research sample, we apply the Difference-in-Differences (DID) method to test the impact of the green finance reform and innovation pilot zones (2017) on the investment efficiency of enterprises in the pilot regions. We also adopt a two-step method to test the mechanisms of financial resource misallocation and agency costs. The study reveals that the green finance policy significantly enhances the investment efficiency of enterprises in the pilot areas. Financial resource misallocation and agency costs are important influence mechanisms. Drawing on resource allocation theory and agency theory, the study concludes that the green finance policy alleviates financial resource misallocation by directing financial resources toward high-efficiency enterprises. Moreover, the policy effectively reduces agency conflicts caused by power separation and information asymmetry, ensuring that enterprises can maximize the benefits of their investments. Heterogeneity analysis shows that non-state-owned enterprises and low-tech innovative enterprises in the pilot areas have disadvantages in terms of capital stock and loan credit, so the policy can improve their investment efficiency effectively. Based on these findings, we recommend that to leverage the positive effects of the green finance policy, it is essential to enhance the guiding role of the government, strengthen market mechanisms, and bolster corporate initiatives. This study complements the research on the economic effects of location-orientated comprehensive green finance policies on enterprises, considering the dual aspects of resource allocation efficiency and corporate governance, and makes up for the shortcomings of the existing literature. The study's conclusions offer valuable insights for enhancing green finance to support enterprises in achieving efficient production.

Monetary policy and corporate investment: evidence from India

Purpose This study aims to investigate the impact of quantity-based and price-based monetary policy on corporate investment in India. Also the study investigates the impact of firm-level factors on corporate investment under quantity-based and price-based monetary policy. Design/methodology/approach The study is based on sample of 3,782 non-financial Indian firms (45,238 observations) and the data has been collected for a period 2000–2023. The study applies instrument variable approach to arrive at the results. Findings The study finds that both quantity-based and price-based monetary policy significantly affects corporate investment of firms and the transmission of monetary policy to corporate investment is constrained by firm-specific factors. This paper find that firm-specific factors play a significant role in transmitting the effects of both quantity-based as well as price-based monetary policy respectively and such results have also been witnessed across manufacturing and non-manufacturing sectors. Originality/value To the best of the authors’ knowledge, this is the first study in the Indian context that examines the impact of quantity-based and price-based monetary policy on corporate investment.

Heterogeneity Analysis of Economic Policy Uncertainty on Corporate Investment Based on Panel Threshold Regression

As the global landscape evolves rapidly, economic policies must constantly adapt to the volatile economic situation, leading to economic policy uncertainty (EPU). Firms, as microeconomic entities, need to continuously adjust their strategies in response to these changes. Given that corporate investment is one of the most crucial factors in business operations, it is of paramount importance to investigate how the characteristics of corporate investment are influenced by EPU. Using the panel threshold regression method, we delve into the nonlinear impact of EPU on corporate investment. By collecting data from 2000 to 2023 for A-share listed companies in Shanghai and Shenzhen, as well as macroeconomic data, we empirically find that EPU exerts significant and differentiated effects on corporate investment across four dimensions: leverage level, company size, profitability, and growth potential.

Brand capital and corporate investment efficiency

AbstractUsing a sample of US firms from 1975 to 2021, we show that brand capital improves investment efficiency, which is robust to various measures of brand capital and investment efficiency. To mitigate endogeneity concerns, we exploit the passage of the Federal Trademark Dilution Act as an exogenous shock to brand capital and find that it strengthens the positive effect of brand capital. Our cross‐sectional analyses show that this positive relationship is more pronounced for firms with greater financial constraints and higher information asymmetry. These results suggest that brand capital reduces over‐ and under‐investment through alleviating financial constraints and information asymmetry.

Directors from related industries and corporate diversification

ABSTRACT This paper aims to examine the impact of directors from related industries on corporate diversification. Director social networks, as a form of informal institution, have significant effects on firms’ production, operation, and strategic decision-making. However, few studies have focused on the economic effects of directors from related industries. We select Chinese A-share listed companies from 2012 to 2021 as our research sample and empirically examine the impact of directors from related industries on corporate diversification. The study finds that directors from related industries can promote corporate diversification. Mechanism tests that they can influence corporate diversification through the information channel. Heterogeneity analysis shows that the impact of directors from related industries on corporate diversification is more pronounced in firms with strong absorptive capacity, non-state-owned enterprises, and in regions with poor institutional environments. Additionally, directors from related industries can strengthen the positive correlation between diversification and corporate investment efficiency.

Systemic risk spillovers among global energy firms: Does geopolitical risk matter?

In recent years, the worsening global geopolitical conditions have led investors and policy makers to become increasingly concerned about systemic risk in the global energy market. However, the existing literature has little empirical evidence on this problem from a geopolitical perspective. Based on an Elastic-Net-VAR model for depicting high-dimensional left-tail interdependence, this paper measures time-varying systemic risk spillovers among 212 energy firms in 36 countries. Then, a panel data model is established to examine the impact of geopolitical risk (GPR) on risk spillovers. Our results indicate that the GPR of a country directly intensifies the risk spillovers of the country's energy firms, as well as spreads to other countries based on geographic proximity and energy trade flows and indirectly intensifies the risk spillovers of the energy firms in these countries. Specifically, the indirect effects of GPR are more pronounced than the direct effects for fossil fuel firms, in oil-consuming countries, and during stable periods in global geopolitics. Moreover, the potential firm-level mechanisms through which GPR intensifies risk spillovers are declines in asset turnover, deceleration in corporate investment, and negative market forecasts. These findings can help to mitigate the adverse effects of GPR on energy firm performance, national energy security, and stability in the global energy market.

The low carbon transformation of cities and corporate investment efficiency: Evidence from a quasi-natural experiment

The low carbon transformation of cities and corporate investment efficiency: Evidence from a quasi-natural experiment

Does climate policy uncertainty impair or improve corporate investment efficiency?

Climate policy uncertainty (CPU) has been a topical issue given its widespread impacts, but its effect on corporate investment efficiency is arguable. Based on a sample of Chinese listed firms, we find that higher CPU results in lower investment levels while higher investment sensitivity to investment opportunities. This suggests that CPU improves investment efficiency by pushing firms to reduce investment expenditures and align their investment decisions more in line with investment opportunities. We name this finding as the pushback effect of CPU and find that it is more pronounced for firms with overinvestment or tight financial conditions.

Can digital transformation promote hospitality and tourism firms’ investment? Moderating effect of financing constraints and economic policy uncertainty

ABSTRACT Research on corporate investment is widely acknowledged as essential in the realm of financial management within the hospitality and tourism sector. Drawing on information asymmetry and resource dependency theories, this study examines the effect of digital transformation on hospitality and tourism firm investment and explores how financing constraints and economic policy uncertainty moderate these effects. We utilized firms engaged in tourism, hotel, catering, and transportation, listed on the A-share market of China’s Shanghai and Shenzhen stock exchanges from 2009 to 2022, as our research sample. Our findings indicate that digital transformation enhances investment in hospitality and tourism companies. Furthermore, this positive effect was more pronounced for firms with reduced financing constraints and heightened economic policy uncertainty. These findings reveal ignored tourism and hospitality investment antecedents and enrich academic understanding by expanding firm-specific boundaries. This study provides practical insight into how hospitality and tourism firms can boost investment through digital transformation.

Safeguarding Human and Environmental Rights amidst Land-based Corporate Investments in Emerging Markets and How These Investments are Impacting Vulnerable Populations in Africa, Particularly Women​

No abstract.

How Does AI Affect the Pay Gap Within Firms: Mechanism Analysis Based on Personnel Structure and Corporate Investment

ABSTRACTThis study examines how AI impacts the internal pay gap within enterprises. Using data from listed companies in China and a panel data two‐way fixed effect model, findings reveal that AI widens pay gap, with executives in AI‐applied companies earning 0.327 times more than average employees. AI increases executive pay while hindering employee salary growth, especially in nonmanufacturing and private firms. Labor substitution AI reduces employee compensation growth, whereas labor enhancement AI boosts executive pay without affecting employee compensation. AI also influences personnel structure and enterprise investment in fixed assets and R&D, highlighting its “job substitution effect” and “productivity effect”.

The impact of inclusion in the MSCI EM index on firms' investment efficiency：Evidence from China

This paper investigates the impact of A-share inclusion in the MSCI index on corporate investment efficiency. Using the inclusion of A-shares in the MSCI index on June 1, 2018 as a quasi-natural experiment, the results of the PSM-DID model show that the inclusion of A-shares in the MSCI index significantly reduces corporate investment efficiency. Further analysis reveals that inefficient investment mainly occurs in over-invested firms, non-state-owned firms, and firms audited by Big 4 accounting firms. Firms with low managerial ownership and high degree of surplus management are more likely to overinvest after A-share inclusion in the MSCI index, which leads to a decrease in investment efficiency. Firms with high analyst attention and low equity checks and balances increase their investment after A-share inclusion in the MSCI index, and the influences of decision-making power and control can be the triggers to reduce investment efficiency.

Bank loan maturity and corporate investment

This study analyzes bank loan maturity and corporate investment linkage by using novel firm-level data covering the universe of all incorporated firms in Türkiye over the last decade. The results of the panel regression model with multi-dimensional fixed effects reveal that loan maturity has a significant positive association with investment, indicating that longer debt maturity fosters corporate investment. The results reveal that the positive linkage between longer debt maturity and investment is more pronounced for small and medium-sized enterprises (SMEs). This is also the case for young firms and firms with high growth opportunities. Considering the evidence provided in the literature that bank lending conditions, including maturity structure, are highly cyclical and vulnerable to financial conditions and economic policy uncertainties, our findings highlight the importance of reducing the policy uncertainties as well as the importance of policies that make equity financing more attractive and deepen the capital markets.

The Relationship Between Chief Financial Officer Gender and Investment Efficiency

Objective: This study aims to examine the relationship between the gender of the chief financial officer (CFO) and the efficiency of corporate investment, especially over-investment. Methods: The independent variable is the gender of the CFO and the dependent variable is over-investment. The research method is correlation type and multivariate regression using panel data with a logistic regression model approach. The data of manufacturing companies in the Tehran Stock Exchange has been collected from 2017 to 2021. Results: The findings of the research show that the presence of a female financial manager is significantly related to the reduction of the company's over-investment level, so gender plays a role in the economic decision-making and investment of companies. Conclusion: Female chief financial managers are more risk-averse compared to male chief financial managers and consider the interests of shareholders in the company’s economic decisions. Therefore, companies should pay special attention to gender diversity at the level of company managers in making decisions and economic investments.

Uncertainty, corporate investment, and hiring: The case of COVID-19

We investigate how the COVID-19 pandemic affected CFOs’ self-assessed uncertainty about revenue growth and its impact on investment and hiring plans, using data from two consecutive surveys of the same CFOs conducted before and during the pandemic. Following the WHO's declaration, firm-level uncertainty increased, and investment plans were restrained. Furthermore, heightened firm-level uncertainty dampened firms' investment and hiring plans, even after controlling for other pandemic-related factors, as well as financial and investment flexibility.

The impact of intellectual capital and market capitalization on corporate investment decisions: exploring the mediating and moderating effect of knowledge sharing and the COVID-19 pandemic

PurposeThis paper examines the effect of intellectual capital (IC) and market capitalization (MC) on corporate investment decisions (ID) through the mediating and moderating effects of knowledge/information sharing (KS) and the Covid-19 pandemic.Design/methodology/approachWith the use of SPSS 26 and SmartPLS version 3.0, the partial least square structural equation modelling (PLS-SEM) technique is employed with 1,036 observations to examine the effects.FindingsOur findings show that IC and social interactions (SI) have a positive effect on KS. KS affects positively both MC and ID. KS has the mediating and moderating effects while the Covid-19 has the moderating impact on ID.Practical implicationsThis research suggests that company leaders should understand the important role of IC and MC in enhancing ID through KS. They should pay attention to MC to enhance their investment and SI among employees, partners, consumers and authorities should be encouraged.Originality/valueThis research contributes to the existing literature by employing the perceptual scale to examine the effect of IC and MC, the mediating and moderating effects of KS, and analyze the moderating role of the Covid-19 on ID. It also expands the current models by including the Covid-19 and MC to clarify the ID determinants. New measurements of MC and the Covid-19 constructed are also another contribution.

Upstream propagation of shocks in supply chains: Evidence from earthquakes

AbstractWe investigate how natural disaster shocks to customers propagate upstream to suppliers’ investment. Using data from the major customers of Chinese listed firms and earthquake information during 2009–2019, we investigate the impact of customers’ earthquake exposure on corporate investment. We find that firms significantly reduce investment after their customers experience earthquakes, particularly for non‐state‐owned enterprises, firms with higher product uniqueness, firms in competitive industries, and firms in nondurable goods industries. Furthermore, our analysis highlights firms’ sales as one of the potential channels through which customers’ earthquake exposure influences firm investment. We also find that following an earthquake supplier firms reduce their transactions with the affected customers and develop alternative customers.

Accruals quality and efficient investing: Cross-country evidence

This study examines whether the effect of firm-level financial reporting quality − measured in the form of the quality of accruals − on corporate investment efficiency differs across jurisdictions with different strengths of institutional and regulatory enforcement. Institutional enforcement effectiveness relates to operating in jurisdictions with lower vs. higher informational uncertainty about actual firm performance, and where institutions secure the correct function of markets, with limited concerns about the extraction of any unlawful benefits by insiders. This effectiveness should mitigate adverse selection and moral hazard concerns driving inefficient investment, in the way that firm-specific financial reporting quality has been shown to do within single-country settings. Using a sample from 25 countries, accruals quality is positively associated with efficient investing, regardless of any country-level institutional characteristics. This association becomes more pronounced when the country-level strength of institutional enforcement is weaker, consistent with firm-specific reporting quality increasing in importance when country level institutional enforcement worsens. This evidence indicates that, when the effectiveness of institutional enforcement in a country does not successfully alleviate information asymmetries or secure efficient monitoring of corporate insiders by capital providers, there is greater need for firm-specific accounting quality to perform this function and promote efficient firm-level investing.

Social credit improvement and enterprise investment

This research explores the effects of enhancing social credit on corporate investment, utilizing China's model city pilots for the Social Credit System Construction(SCSC) as a quasi-natural experiment. Our findings demonstrate that social credit improvement significantly increases enterprise investment levels, a conclusion supported by robustness tests. Mechanism analysis reveals that mitigating agency cost and enhancing debt financing are key factors driving increased corporate investment after the implementation of the SCSC. Heterogeneity results suggest that SCSC implementation is more effective for firms without political affiliations and with high institutional shareholding.

Monetary policy uncertainty and financial risk: The mediating role of corporate investment

Monetary policy uncertainty has increased due to the rapidly changing economic environment and international situation in recent years. This study examined the relationship between monetary policy uncertainty and corporate financial risk based on a large sample of China's A-share listed companies from 2012 to 2022. Findings indicate that monetary policy uncertainty was negatively correlated with financial risk. The results remained robust after sensitivity analyses. We found that corporate investment decisions exhibited a potential economic channel underlying the negative relationship between monetary policy uncertainty and corporate financial risk. This study augments the literature on monetary policy uncertainty and financial risk, providing practical implications for investors, managers, and policymakers.