Corporate Investment Efficiency Research Articles

ESG performance and investment efficiency: The impact of information asymmetry

This paper investigates the relationship between firms' engagement in environmental, social, and governance (ESG) activities and corporate investment efficiency, using 1,094 firms from 21 countries in Europe, covering the years 2002–2019. We conduct our estimations using fixed effects panel data techniques and address potential endogeneity with instrumental variables (IV) estimations. We provide evidence that overall ESG engagement is positively and significantly associated with investment efficiency. Analyzing overinvestment and underinvestment scenarios shows that ESG engagement decreases only overinvestment problems. Within the underinvestment scenario, we observe that ESG engagement is beneficial only for firms with higher information asymmetries. Thus, information asymmetry matters in the underinvestment case. We next show that four firm-level channels—information asymmetry, financial constraints, cash flows, and risk—link ESG performance to investment inefficiency. Additional analysis shows that firms with extreme ESG scores (i.e., very low and very high) do not experience significant reductions in investment inefficiency. Altogether, our findings draw attention to the critical role of ESG performance and information asymmetry in determining corporate investment efficiency.

Digitalization and corporate investment efficiency: Evidence from China

We study whether digitalization improves investment efficiency using a sample of 3056 listed enterprises in China from 2007 to 2020. We adopt textual analysis to measure corporate digitalization, and preliminary tests verify the validity of our text-based indicators of digitalization. Our baseline results suggest that companies embracing digitalization exhibit lower instances of both underinvestment and overinvestment. We verify the robustness of our findings using diverse methods, including the Instrumental Variable (IV) method, Difference-in-Differences (DID) method, placebo test, and Propensity Score Matching (PSM) method. Cross-sectional analysis demonstrates an asymmetrical impact of digitalization on investment efficiency. Corporate digitalization is more effective in reducing underinvestment for small enterprises, non-state-owned enterprises, and enterprises in cities with low fiscal constraints. Enterprises with high agency costs, as well as manufacturers specializing in consumer products, derive greater benefits from a reduction in overinvestment. Mechanism analysis confirms that corporate digitalization can mitigate overinvestment by correcting managerial expectations and agency behaviors. Simultaneously, it alleviates underinvestment by diminishing the financing frictions of corporations. Our findings offer a novel perspective on how digitalization can endow companies with competitive advantages.

International evidence on the monitoring role of foreign institutional investors in corporate investment efficiency

PurposeThis study examines whether and how the legal origin of foreign institutional investors (FIIs) impacts corporate investment efficiency.Design/methodology/approachThe study employs a large panel dataset of firms from 32 non-USA countries from 2005 to 2018. Financial and institutional ownership data are obtained from the COMPUSTAT Global and Public Ownership databases in S&P Capital IQ, respectively. The study employed ordinary least squares (OLS) regression with year and firm fixed effects. In addition, two-stage least squares with instrumental variable regression (2SLS-IV) and propensity score matching (PSM) approaches were employed to address the potential endogeneity.FindingsThe findings of this study suggest that common- and civil-law FIIs differ in their monitoring capabilities to promote investment efficiency. The authors find evidence that increased equity ownership by common-law FIIs, not civil-law investors, strengthens the investment-Q sensitivity, resulting in higher investment efficiency. Consistent with the monitoring and information channel, the results further indicate that the positive impact of common-law FIIs on investment efficiency is stronger in host environments susceptible to agency conflicts and information asymmetry.Originality/valueThis study offers novel evidence on the heterogeneous monitoring role of FIIs with regard to their home countries' legal origins and their impact on investment efficiency in an international context.

Retracted: Empirical Research on Seasoned Equity Offerings, Board Member Characteristics, and Corporate Investment Efficiency

Retracted: Empirical Research on Seasoned Equity Offerings, Board Member Characteristics, and Corporate Investment Efficiency

Employee education level and efficiency of corporate investment

PurposeIn this study, the authors explore the association between employee education level and the efficiency of corporate investment using data from a sample of Chinese listed firms during the period from 2011 to 2018. By examining the impact of education on investment efficiency, the authors' study provides valuable insights that contribute to a deeper understanding of the underlying economic mechanisms related to education.Design/methodology/approachThe authors conduct multivariate regression analyses to examine the relationship between investment efficiency (following Richardson, 2006) and the level of employee education, along with a series of control variables. To ensure the reliability of the authors' findings, the authors subject the their results to a comprehensive set of robustness tests, such as a staggered difference-in-difference (DiD) regression approach, an instrumental variable (IV) method and the use of alternative employee education level and investment efficiency measurements.FindingsThe findings offer compelling evidence that higher levels of education have a positive impact on firms' investment efficiency, and this effect remains robust across various model specifications and endogeneity considerations. Moreover, the influence of education is more pronounced in firms that prioritize employee training, maintain effective internal communication and offer attractive financial rewards. Furthermore, the results suggest that the relationship between education and investment efficiency is influenced by the firms' business nature and competitive environment. Factors such as business complexity, labor intensity and business location also play a role in shaping the impact of education on investment outcomes.Originality/valueThe study emphasizes the crucial role of education in influencing investment decisions and performance within firms. By delving into this previously unexplored area, the authors' research contributes to the existing literature, establishing that the level of employee education is a significant determinant of corporate investment efficiency. This valuable insight has substantial implications for firms aiming to enhance their investment decision-making processes and overall performance. Understanding the positive impact of education on investment efficiency can empower organizations to leverage their human capital effectively and achieve better investment outcomes, ultimately contributing to long-term success and competitiveness in the market.

How do credit ratings affect corporate investment efficiency?

AbstractThis study examines the impact of credit ratings on the efficiency of firms' investments. Using a large sample of US firms, we find a positive relationship between the existence of credit ratings and investment efficiency. The cross‐sectional analyses show the positive relationship is more pronounced for firms with greater information asymmetry and weaker corporate governance. Our results are robust to different methods to address potential endogeneity concerns, alternative measures of key variables, and the inclusion of additional control variables. Overall, the findings support the notion that credit rating agencies enhance information transparency and external monitoring, thereby allowing rated firms to promote investment efficiency. The findings contribute to our understanding of the significant role played by credit rating agencies in shaping firms' investment behaviour and efficiency.

The Impact of Family-Based Human Capital on Corporate Innovation: Evidence from Sibling-Chairpersons in China

We examine the impact of family-based human capital stemming from a chairperson’s having siblings vis-à-vis not having siblings on corporate innovation in Chinese family firms. Using hand-collected data, we document that when a firm has a sibling-chairperson, it holds more patents, receives more total citations to its patents, and has greater innovation efficiency and innovation quality than an otherwise equivalent firm with a chairperson having no siblings. The results are economically significant and robust to a battery of robustness checks. Specifically, the findings remain intact after using China’s one-child policy as an exogenous shock to apply a regression discontinuity research design to mitigate endogeneity. Additional analyses suggest that the mechanisms behind the impact of siblings on innovation are consistent with family-based human capital embedded in the sibling relationships such as competition, knowledge spillover, and family firm succession effect among siblings. Furthermore, we show that sibling comanagement and sibling gender diversity matter in corporate innovation. In addition, sibling effect enhances corporate investment efficiency, stock returns, and merger and acquisition performance. Overall, family-based human capital from siblings positively contributes to corporate innovation. This paper was accepted by Victoria Ivashina, finance. Funding: The authors acknowledge financial support from the National Natural Science Foundation of China [Grants 72225005 and 72202249] and the China Postdoctoral Science Foundation [Grant 2022M713658]. Supplemental Material: Data are available at https://doi.org/10.1287/mnsc.2023.4965 .

Female Directors and Investment Efficiency: New Evidence from an Emerging Market

Prior studies show that the effect of female directors on corporate investment efficiency is mixed. This article investigates this relationship in a weak corporate governance setting. With a data of 4,653 firm-years from 582 firms listed in Vietnam during the period 2009–2020, we find that female directors decrease corporate investment efficiency through increasing underinvestment and they have no significant effect on overinvestment. Moreover, the negative relationship between female directors and investment efficiency is stronger in state-owned firms.

Does Supply Chain Finance Improve the Corporate Investment Efficiency of New Energy Firms? Evidence from China

ABSTRACT This research investigates how supply chain finance (SCF) affects the investment efficiency of new energy firms by adopting a sample of Chinese listed new energy enterprises from 2011 to 2019. With the help of data envelopment analysis (DEA) combined with the Banker-Charnes-Cooper (BCC) model, we calculate efficiency values and analyze the regression results of the Tobit model, and find that SCF significantly boosts the investment efficiency of new energy corporations by improving their cash-holding position. The results of mechanism analysis also suggest that both supply chain concentration and digital finance positively magnify the relation between SCF and corporate efficiency. After comparing the impact in the new energy firms with different characteristics, we conclude that the SCF effect in promoting corporate investment efficiency is more prominent for non-state-owned new energy enterprises located in the western region that have low equity concentration. The conclusions of this paper shed new light on the fusion of the SCF business into building a new energy industry cluster.

Minimum wage and corporate investment efficiency: Evidence from China

This article uses China's A-share listed companies from 2002 to 2020 as a sample, to study the relationship between MW increases and company investment efficiency. The results show that the minimum wage has a significant promotion effect on the investment efficiency of enterprises. The reasons for this situation are: on the one hand, an increase in the minimum wage will increase operating expenses and labor costs, and companies will proactively adjust their production and investment strategies. On the other hand, the increase in per capita capital stock will promote the creativity of enterprises, bring about technological progress and productivity improvement.

The effect of state ownership on corporate investment efficiency: evidence from listed firms in Vietnam

Extant literature shows that state ownership is a special type of ownership. Politicians tend to follow both social and economic goals to maintain their positions. In some cases, they may sacrifice the latter to achieve the former. Therefore, firms with high state ownership face more serious agency problems than those with low state ownership. This study investigates how state ownership affects corporate investment efficiency in Vietnam, where privatizing state-owned firms is an important economic policy. Our sample includes 4,937 observations from firms listed between 2007 and 2020. Using fixed effects, random effects, random effects Tobit, pooled OLS, and Poisson regression with fixed effects, we find that state ownership has a negative impact on corporate investment efficiency. In addition, the multinomial logistic regression results show that firms with state ownership are more likely to engage in overinvestment. State ownership weakens corporate governance and thus creates opportunities for managers to expropriate shareholders. Managers tend to increase firm size through overinvestment to strengthen their positions; therefore, firms with state ownership have lower investment efficiency.

Employee treatment and corporate investment efficiency: Evidence from China

Employee treatment and corporate investment efficiency: Evidence from China

Climate policy uncertainty and corporate investment efficiency: evidence from China

Despite the notable impact of climate policy uncertainty (CPU) on capital markets, there has been a lack of research on how it affects corporate investment efficiency (CIE). To address this gap, using data from 2,605 non-financial listed companies from the Shanghai and Shenzhen stock exchanges between 2009 and 2020, this study identifies the effect of the CPU on the CIE. The results show that the CPU adversely affects the CIE in all industries, and the impact is heterogeneous for firms with different resources, with a more significant influence on non-state-owned, technology-intensive companies, and firms where executives have lower levels of education; whereas firms with higher TFP may increase CIE under CPU. Furthermore, CPU has a considerable adverse influence on CIE by harming corporate governance, without necessarily diminishing free cash flow. The results indicate that firms’ resource endowment has a critical bearing on its CIE under an uncertain policy environment.

The adverse impact of corporate ESG controversies on sustainable investment

Global businesses are facing increasingly significant climate risks. Firms with ESG controversies will likely suffer from higher financing costs and inadequate investment capability, leading to investment inefficiency. We use a newly introduced ESG Controversy Score database to investigate the relationship between ESG controversies and corporate investment efficiency. The results show that ESG controversies significantly reduces firms’ overall investment efficiency, and such adverse impact is manifest in underinvestment inefficiency. Further analysis indicates that such a negative effect is more pronounced in firms with larger size and higher analyst coverage. Our findings highlight the significant role of ESG misbehaviour in corporate sustainable development.

CSRC’s supervision and corporate investment efficiency—based on the random inspection

ABSTRACT The random inspection is an important innovation of CSRC’s regulatory initiatives. Using this quasi-natural experiment conducted by the CSRC, we examine the impact of the random inspection on corporate investment efficiency. The result shows that after the listed firms are inspected, the investment efficiency is significantly improved. Further analysis shows that the improvement of accounting information quality and corporate governance are two important channels through which random inspection affects corporate investment efficiency. Cross-sectional analysis finds that the effect is more pronounced in the group with low internal control and poor legal environment. Lastly, we find that secondary random inspection can significantly strengthen the positive association between random inspection and corporate investment efficiency. The conclusions support the positive significance of CSRC’s supervision.

Artificial intelligence algorithms and cloud computing technologies in blockchain-based fintech management

Research background: Fintech development shapes corporate investment efficiency and economic growth with innovative tools, and can decrease financing constraints of enterprises, enabling direct and indirect financing and furthering inter-bank competition. Crowdfunding- and blockchain-based fintech operations harness deep and maching learning algorithms, augmented and virtual reality technologies, and big data analytics in mobile payment transactions. Purpose of the article: We show that fintechs have reconfigured financial service delivery by harnessing AI-based data-driven algorithms and cloud and blockchain technologies. Fintech optimizes financial organization and services, economic structures and growth, data analysis, and digital banking performance. Machine learning algorithms can streamline payment operation capabilities and process promptness, ensuring smooth operational flows, assessing risks, and detecting frauds and money laundering by historical data and customer behavior analysis across instant payment networks and infrastructures. Methods: Quality tools: AXIS, Eppi-Reviewer, PICO Portal, and SRDR. Search period: July 2023. Search terms: “fintech” + “artificial intelligence algorithms”, “cloud computing technologies”, and “blockchain technologies”. Selected sources: 40 out of 195. Published research inspected: 2023. Data visualization tools: Dimensions and VOSviewer. Reporting quality assessment tool: PRISMA. Findings & value added: Fintech development enables organizational innovation by mitigating information asymmetry and financing limitations while providing financial assistance and tax incentives in relation to products and services. The fintech growth has influenced the dynamic intermediary function of financial institutions in terms of sustainability and economic development. Fintech and natural resources negatively influence, while green innovations and financial development further, environmental sustainability.

Science and Technology Finance, Enterprise Digital Transformation, and Corporate Investment Efficiency: Evidence from the Pilot Policy of Combining Technology and Finance

Science and Technology Finance, Enterprise Digital Transformation, and Corporate Investment Efficiency: Evidence from the Pilot Policy of Combining Technology and Finance

Corporate sustainability policies and corporate investment efficiency: Evidence from the quasi-natural experiment in China

This paper studies the impact of green disclosure on firm investment efficiency, leveraging a policy experiment in China. Since 2012, the Chinese government has begun to implement the Ambient Air Quality Standards (AQS), which have strengthened the requirements for green disclosure throughout the country. We exploit the rollout of the AQS and find that tightening the green disclosure requirements significantly increases corporate investment efficiency. This increase is primarily driven by a reduction in underinvestment among non-state-owned firms and firms with low institutional ownership. Further analysis suggests that the alleviation of agency problems and the reduction of financial constraints are the two main mechanisms through which green disclosure influences firm investment efficiency. Our findings provide valuable policy implications, indicating that strengthening green disclosure standards can have a substantial positive impact on firm investment outcomes.

The power influence of executives and corporate investment efficiency: empirical evidence from Chinese state-owned enterprises

Previous literature has explored investment efficiency in terms of executive incentives, supervisory mechanisms, information disclosure, agency conflicts, and managerial capabilities. This study focuses on analysing the power influence of executives in the context of Chinese State-Owned Enterprises (SOEs) from the two hypotheses of “economic man” and “social man”, aiming to improve the research between the power influence of executives and investment efficiency. This study adopts principal component analysis to comprehensively evaluate the power influence of executives in Chinese SOEs from four dimensions, namely, organisational position influence, personal competence influence, industry influence, and prestige influence. Using the analytical tool STATA15 to establish a regression model, the mechanism of executive power influence on investment efficiency is explored from the logic of “financing constraints” and “diversification”. It then explores the moderating effects of equity concentration and independent director oversight. The empirical results show that the greater the power influence of the executive, the lower the investment efficiency. The intermediary mechanisms of this study find that executives of Chinese SOEs can use their power influence to reduce financing constraints, obtain more resources, and make diversified investments, thus generating inefficient investments. This study also finds that equity concentration and oversight by independent directors have a positive moderating effect on executive power and investment efficiency. The results of this study are robust due to the use of the instrumental variables approach. The innovation of this study integrates the measurement of executive power influence in the particular context of SOEs and analyzes its impact on investment efficiency. It enriches the study of factors influencing executive power and corporate investment efficiency.

Strengthened enforcement, weakened efficiency: The effect of environmental inspection on corporate investment

We examine the impact of China’s Central Environmental Protection Inspection on corporate investment efficiency. Results show a decline in investment efficiency of high-polluting firms, especially in non-state-owned and less politically connected firms, highlighting unforeseen negative effects of stricter environmental enforcement.