Investment Efficiency Research Articles

The Impact of Accounting Quality on Investment Efficiency: Evidence from the 2001 Bank Shareholding Limitation Act of Japan

The Impact of Accounting Quality on Investment Efficiency: Evidence from the 2001 Bank Shareholding Limitation Act of Japan

Impact of controlling shareholders’ equity pledges on firms’ labour investment efficiency

Controlling shareholders in the Chinese capital market are increasingly obtaining pledged loans from financial institutions through equity pledges. This study analyses the relationship between controlling shareholders’ equity pledges and the labour investment efficiency of listed companies using a sample of listed companies from 2009 to 2022. Controlling shareholders’ equity pledges reduce labour investment efficiency by exacerbating capital pressure and refocusing business investment. Furthermore, the inhibitory effect of equity pledges on labour investment efficiency is more pronounced in companies with lower audit quality, lower equity checks and balances and higher degrees of equity pledges.

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.

Cheap U.S. Dollar Credit: Panacea or Poison? Firm‐Level Evidence from Emerging Markets

AbstractUsing firm‐level data from emerging markets, we find that the dollar debt issuance significantly increases issuers’ risk‐taking. While the dollar debt issuance significantly increases issuers’ investment spending, it reduces their investment efficiency substantially. We also show that macroprudential policies can help mitigate the risk‐taking effect of dollar debt issuance. In addition, we provide evidence that nonissuers exhibit increased risk‐taking when faced with rising intraindustry competition pressure from issuers. Overall, the cross‐sectional risk distributions at the industry level are more tilted toward the downside.

Supply chain finance and its impact on mitigating the maturity mismatch between corporate investment and financing: evidence from China

ABSTRACT This paper examines the relationship between supply chain finance and the mismatch between investment and financing maturities using data from Chinese A-share listed companies from 2010 to 2022. Empirical results demonstrate that company participation in supply chain finance significantly reduces the degree of investment-financing maturity mismatch, especially in regions with well-developed financial sectors and industries characterized by intense competition. Mechanism analysis indicates that this positive effect is achieved through reductions in inventory turnover cycles, decreases in cash flow volatility, as well as enhancements in investment efficiency and financial quality within companies.

MANAGING COMPETITIVENESS AND RISK: THE EFFECT OF SHARIAH COMPLIANCE AND THE CENTRAL ROLE OF REPUTATION AND INVESTMENT EFFICIENCY

Business practices, especially in Muslim-majority countries, are more influenced by religious values. Therefore, CSR is less relevant or relatively limited to be implemented as an accountability mechanism, so it is advisable to consider religious values as an alternative approach to business ethics. In this context, adopting Sharia Compliance (SC) is seen as one of the dimensions of accountability, a form of business ethics implementation, and a manifestation or proxy of business ethics other than CSR. Therefore, based on the theory of business ethics, this study develops and tests a trivariate relationship model to explain how reputation and investment efficiency play a role in the relationship between SC and competitiveness and risk as proxied by the cost of equity capital. Using 825 observations, the estimation results indicate a partial mediation effect of reputation in the relationship between SC and risk (cost of equity capital). However, there is no mediation effect in the relationship between SC and competitiveness. Other estimation results indicate a partial mediation effect of investment efficiency in the relationship between SC and the cost of equity capital and competitiveness. This indicates that investment efficiency can provide additional totals in the relationship between SC and the cost of equity capital and competitiveness. However, the mediation effect of investment efficiency in the relationship between SC and SC competitiveness produces a total negative effect. Therefore, it can be said that the mediation of investment efficiency in the relationship between SC and competitiveness is an inconsistent or competitive mediation model. Overall, the partial mediation effect of reputation and investment efficiency indicates (1) there are other mediators (hidden mediators) in the relationship between SC and equity capital costs and competitiveness, (2) SC in reducing equity capital costs and producing competitiveness, among others, by building a good reputation and utilizing positive NPV investment opportunities.

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.

The impact of venture capital subscription on price deviation of private placement: evidence from China

Purpose The purpose of this study is to examine the role of venture capital (VC) in supporting corporate growth and innovation through participation in private placements. While VC provides essential financial support to companies, it remains unclear whether this involvement serves a strategic investment role or a purely financial one. This study seeks to elucidate the role of VC by analyzing changes in the price discount of private placements following VC participation. Design/methodology/approach The authors take the private placement events of China A share listed companies from April 2005 to January 2023 as the sample, and examine the influence of VC subscriptions on price discount rate. Findings VC subscriptions to private placements increase information asymmetry, consequently raising the discount rate. This relationship is influenced by the transaction characteristics and information environment. Specifically, VC subscriptions further elevate the discount rate when VC are geographically dispersed from the issuers, possess industry expertise in the issuers’ sector, allocate raised funds for asset restructuring or non-digital investments and when the issuers are in their growth stages. Moreover, the positive correlation between VC subscriptions and the discount rate is more pronounced under conditions of lower internal control quality and weaker external media supervision. Higher discount rates in VC-subscribed private placements result in lower R&D investment and investment efficiency by the issuers, leading to larger-scale VC sell-offs and ultimately diminishing the market and financial performance of the issuers. Practical implications The issuers should diligently assess the behaviors and motives of VC and selectively choose issuance targets and methods to manage risks associated with price deviations in private placements. Additionally, this study recommends that regulatory authorities develop a more detailed regulatory framework that considers transaction characteristics and the information environment. This strategy should help optimize external regulatory measures like media coverage and protect the interests of small and medium-sized investors. Originality/value This study extends research on the “name chasing” motive and certification effect of VC in private placements, enriches the literature on the mechanisms forming discount rates and provides insights for refining regulatory policies on private placements.

The effect of international diversification on investment efficiency

Although internationalization research has proliferated recently, scant attention has been devoted to understanding why international expansion decreases firm value. By applying the concepts of transaction cost economics and agency theory, we propose that the impact of internationalization on investment efficiency—a critical determinant of international strategy success—is significant. Internationalization often exacerbates information asymmetry and complicates effective monitoring leading to diminished investment efficiency. Moreover, this relationship is moderated by international experience, the intensity of industry competition, and the stage of the firm's lifecycle. An Ordinary Least Squares regression analysis of a US sample with 49,168 firm-year observations between 1989 and 2022 supports our predictions. This study not only advances internationalization theories but also provides a fresh perspective on the performance implications of international expansion, underscoring the organizational and industrial conditions that influence the success of internationalization efforts.

Efficiency of Educational Resources Investment: Does Financial Expenditure Matter?

ABSTRACT Education and human capital drive economic and societal development, necessitating increased inputs, outputs, and efficiency to improve resource allocation. Using principal component analysis, spatial correlation, fixed-effect and data envelopment analysis models, we evaluate higher education resource inputs and outputs. We find that financial investment drives resource transformation. Furthermore, the input and output of China’s higher education are stronger in the east, the central and western regions show a catch-up effect; and scaling alone does not guarantee better education. There are shortcomings in scientific and technological innovation and social service outputs, believe fiscal expenditure efficiency can be improved by optimizing higher education resource allocation, and implementing differentiated education development strategies.

The impact of regional emergency logistics response capacity on sustainable economic growth in China

To assess the impact of China’s regional emergency logistics response capabilities on economic growth sustainability, this study develops a set of comprehensive indicators. It applies the entropy weight method combined with the TOPSIS method to evaluate these capabilities across regions. Based on panel data from 30 provinces in China from 2012 to 2021, this study employs panel models, panel quantile regression, and panel threshold models to analyze the impact of emergency logistics response capability on sustainable economic growth. By measuring the regional emergency logistics response capability and examining its effects on the sustainability of economic growth, this research provides foreign investors with a clearer understanding of the ability of different regions in China to handle unexpected public incidents. This, in turn, helps reduce investment uncertainty, mitigate certain risks, and offers valuable insights for enhancing the efficiency of international investments in China. Key findings are: (1) Since 2018, the establishment of the Ministry of Emergency Management has significantly improved China’s regional emergency logistics capabilities, with the eastern region outperforming the central and western regions. (2) Enhancing China’s emergency logistics response capability helps improve the sustainability level of economic growth. This reflects how China’s emergency management departments can mitigate the adverse impacts of public emergencies on economic growth by transforming social logistics into emergency logistics. (3) As emergency response capabilities have strengthened, their impact on economic sustainability initially decreased but later increased.

Leveraging enhanced egret swarm optimization algorithm and artificial intelligence-driven prompt strategies for portfolio selection

In the financial field, constructing efficient investment portfolios is a focal point of research, encompassing asset selection and optimization of asset allocation. With the advancements in Large Language Models (LLMs), generative Artificial Intelligence (AI) tools have showcased capabilities never seen before. However, the black-box nature of these tools renders their outputs difficult to interpret directly, often necessitating iterative fine-tuning to align with users’ expected outcomes. This study presents a structured prompt framework specifically designed for stock selection, aiming to provide direct and interpretable stock-selecting tools for investors of various levels. By creating representative scenarios and combining them into different cases for experimentation, we can explore how the construction of prompts influences the responses generated by generative AI tools. Additionally, this paper proposes a novel algorithm that combines the Nonlinear-Activated Beetle Antennae Search strategy with the Egret Swarm Optimization Algorithm (NBESOA) to address the Mean-Variance Portfolio Selection problem with Transaction Costs and Cardinality Constraints (MVPS-TCCC), utilizing real stock market data to construct portfolios based on generative AI tools recommendations. Simulation results indicate that, compared to other algorithms, NBESOA prefers optimizing portfolio configurations to achieve the highest Sharpe Ratio with the strictest constraints, bringing the outcomes closer to the portfolio’s efficient frontier.

Artificial Intelligence and the Development of “Specialized, Refined, Unique, and Innovative” Small‐ and Medium‐Sized Enterprises

ABSTRACT“Specialized, Refined, Unique, and Innovative” (SRUI) enterprises are a crucial part of the national innovation system and play a significant role in enhancing national core competitiveness by leveraging strengths and addressing weaknesses. Given the limited quantitative analysis on the productivity of SRUI enterprises in the academic field, this paper constructs an enterprise‐level artificial intelligence index based on text analysis and machine learning. Using panel data from 2018 to 2022, we investigate the impact of artificial intelligence on the productivity of SRUI small‐ and medium‐sized enterprises (SMEs). The research findings indicate that (1) artificial intelligence significantly enhances the productivity of SRUI SMEs, and for each one standard deviation increase in artificial intelligence, the productivity level of SRUI enterprises will increase by 6.82%. (2) Mechanism tests reveal that artificial intelligence improves productivity by optimizing labor structure, improving labor resource allocation, stimulating endogenous motivation and innovation vitality within enterprises, and enhancing management level and investment efficiency. (3) Heterogeneity analysis indicates that at the regional level, artificial intelligence significantly boosts the productivity of enterprises with well‐developed network infrastructure and robust intellectual property protection systems. At the industry level, AI has a more pronounced effect on the productivity of technology‐intensive and competitive industries. Additionally, we also find that the impact of AI on productivity is more significant in enterprises with younger executive teams and executives with digital and intelligent education backgrounds. This study expands the research scope of productivity and provides valuable insights for the government to optimize digital economy policies and for enterprises to formulate digital innovation strategies.

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.

Internal governance and investment efficiency: The role of non-CEO executives

In this paper, we reveal an overlooked but important role of corporate governance on investment efficiency: non-CEO executives. Internal governance, measured as the fraction of independent executives appointed before the current CEO, leads to a better investment efficiency. The governance effect is pronounced when executives have stronger incentives, such as a longer horizon or a higher shareholding ratio. To explain the promotion of investment efficiency, we find that independent executives help constrain CEO power. They also contribute to better quality of accounting information. Moreover, internal governance by non-CEO executives is hardly affected by external supervisors, and other internal governance mechanisms fail to enhance firms' investment efficiency, indicating the unique monitoring role of independent non-CEO executives. Our study demonstrates the significance of a democratic management team and the necessity to limit the power of CEOs to appoint new executives.

Corporate culture and investment inefficiency

Using an aggregate measure of corporate culture, we find that firms with stronger corporate culture encounter lower investment inefficiency. We show that reducing information asymmetry or engaging in tax avoidance are two potential channels through which corporate culture reduces investment inefficiency. Further analyses reveal that the aforementioned relationship is more pronounced for firms with lower local religiosity, firms with less corporate social responsibility engagement, and financially unconstrained firms. Overall, our findings contribute to the literature stressing the importance of corporate culture for corporate decisions and outcomes, and hence, for adding value.

The effects of Artificial intelligence orientation on inefficient investment: Firm-level evidence from China's energy enterprises

The effects of Artificial intelligence orientation on inefficient investment: Firm-level evidence from China's energy enterprises

The Impact of Institutional Commitments on Corporate Risk-taking: Evidence from the United Nations Principles for Responsible Investment

Taking the institutions that signed the United Nations (UN) Principles of Responsible Investment (PRI) from 2012 to 2021 as a sample, we study whether the risk-taking of investment targets will be affected when the institutions sign the PRI. The findings demonstrate that when an institution subscribes to the PRI, it significantly decreases its investment target’s degree of risk-taking. After a series of stability tests, such as surrogate variables and propensity score matching method, the main regression results in this paper remain consistent. It has been suggested through mechanism analysis that signing the PRI increases both investment efficiency and information disclosure quality thereby minimizing enterprise risk-taking behavior. Further research shows that the state-owned nature of institutions and higher media attention can reduce the risk-taking of enterprises. This paper provides a new explanatory dimension through which enterprises can reduce their level of risk-taking and offers a theoretical foundation for further expanding the impact of the PRI.

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.

How bankruptcy system innovation affects firm investment behavior: A quasi-natural experiment based on the establishment of bankruptcy courts in China

This study investigates the effects of bankruptcy system innovation on firm investment behavior. Taking the establishment of bankruptcy courts in China as a quasi-natural experiment and using the difference-in-differences method, we show a significant positive relationship between the bankruptcy system and firm investment in financial assets. Improving creditor protection, increasing firms' financing constraints and costs, and increasing the bankruptcy reorganization rate are the main mechanisms through which the establishment of bankruptcy courts promotes firm investment in financial assets. Moreover, the effects of bankruptcy court establishment on firm investment in financial assets are more significant for non-state-owned firms, firms with CEOs who do not have a financial background, and firms in regions with better institutional environments. Finally, we find that the increased investment in financial assets by firms after the establishment of the bankruptcy court balances the efficiency of investment in financial assets at the same time. The findings of this study can provide a reference for optimizing the allocation of market resources and improving the financial rules of the legal system.