Firm Investment Research Articles

The Impact of Family Involvement on the Board Faultlines’ Influences on Family Firm Investment Efficiency

The Impact of Family Involvement on the Board Faultlines’ Influences on Family Firm Investment Efficiency

In-Depth Analysis of Investment Companies: Industry Dynamics, Management Mechanisms and Strategic Adjustments

As the global economy continues to evolve, investment firms are facing unprecedented challenges in adapting to market volatility, optimizing asset allocation, and responding to policy guidance. The purpose of this paper is to explore how investment companies can respond to industry dynamics through strategic adjustment and strengthen management and analytical methods. Through an in-depth analysis of the investment case of Wal-Mart Investment Bank, the core functions of state-owned capital investment companies in serving the national strategy, optimizing the layout of state-owned capital and enhancing industrial competitiveness are discussed. Through an in-depth analysis of the organizational structure, governance structure and business choices of state-owned capital investment companies, this paper also proposes the risks and challenges that investment companies will face in the new era, as well as how to make decisions and control mechanisms. Finally, this paper aims to make effective suggestions and solutions for how to adjust the investment strategies of various multinational companies in the future development.

Inclusion in Thematic Indices: Implications for Corporate Investment and Executive Compensation

Empirical studies have found that stock index inclusion leads to more market attention. This paper examines how the public information triggered by index inclusion affects firm investments and stock-based management compensation. Using an agency model with a costly investment project that increases the probability of index inclusion, I demonstrate that thematic indices create incentives for investment and managerial actions if there is an intermediate level of information asymmetry between a speculator and the public. Firms invest more to reduce the expected loss of shareholders to the speculator and lower the manager's compensation risk. In contrast, if the information asymmetry is very low or very high and liquidity trading introduces little noise, shareholders' losses to the speculator are already low for firms outside the index, and the additional information increases the stock price variance and compensation risk. Hence, the firm invests less to avoid index inclusion. The same forces are at play in an extension with an investment that reduces the firm's inclusion probability. Consequently, the board adjusts the investment level in the opposite direction.

IFRS-16 and Firm Investment: Leasing Commitment and Intensity

Generally, this study examines the economic consequences of IFRS-16. Specifically, this study investigates whether commitment and leasing intensity affect firms' investment decisions. Previous literature focuses on constructive capitalization in operating leases and off-balance sheet financing as ex-ante impacts on financial statements. In contrast, this study examines the ex-post impact of leasing on financial statements. Furthermore, this study illustrates the aspects of lessee behavior in their decision to reduce operating leases before the effective date of IFRS-16 implementation. We used paired t-tests and regression with cluster robust standard error and samples from five countries with the largest leasing volume (United States, China, United Kingdom, Germany, and Japan). The observations start from 2011-2022. This study finds that operating lease intensity fell after issuing IFRS-16, while capital lease intensity arose. Operating and capital lease commitment affect firm investment positively, indicating that managers do not always use operating leases to reach opportunist reporting incentives.

National Governance Quality, Competition and Firm Investment

Abstract This study investigates how market competition affects firm investment and the moderating effect of national governance quality (CGI) on the relationship between competition and firm investment in research and development (R&D) and tangible assets. The sample consists of 16,493 observations from World Bank Enterprise Surveys (WBES) in 88 countries in 2016 – 2022. The regression results show that both the competition and the level of market competition encourage firms to invest more in R&D and tangible assets. The quality of national governance also adjusts the relationship between competition and firm investment. Notably, the better quality of national governance strengthens the relationship between competition and firm investment. However, it weakens the relationship between a higher degree of competition and firm investment. In addition, the marginal effects examination suggests that variations in the quality of national governance influence the relationship between competition and investment in R&D investment, which is more pronounced than tangible investment in the presence of at least one competitor. In conclusion, the relationship between competition and investment is moderated by changes in CGI, the starting level of CGI score, and the market structures. The empirical results propose some implications for firm managers and policymakers to boost investment and a transparent environment for firm investment.

Will China's Carbon Emission Trading Regulation Really Decrease the Green Investment of Firms? A Microperspective on Corporate Governance

ABSTRACTAlthough China initiated pilot carbon emission trading (CET) regulations in 2014, systematic research specifically examining their impact on corporate green investment expenditure (GIE) and the underlying mechanisms from an internal and external perspective remains limited. To this end, we conducted a quasinatural experiment to investigate how CET regulations affect the GIE of firms in eight high‐emission industries. Using a difference‐in‐differences (DID) approach and propensity score matching (PSM‐DID) on 4117 year‐firm observations of listed A‐share firms located in China's covered areas from 2010 to 2019, we found that CET regulations have a negative impact on firms' GIE. Further, from the microperspective of internal and external mechanisms of corporate governance, we also find negative moderators of corporate innovation capability and carbon trading market efficiency, respectively. The detailed heterogeneity impacts of the CET policy on the GIE of CET‐covered firms in different regions, industries, and ownership types are illustrated. This study systematically analyzes the impact of CET policy on GIE in high‐emission industries in China, focusing on the internal and external mechanisms of corporate governance. By doing so, it contributes to the literature in environmental economics and corporate green investment, offering new insights into the effects of regulatory policies on corporate behavior in high‐emission sectors. Enterprises should properly deal with the relationship between carbon emission quotas and green investment to realize a virtuous cycle of reasonable GIE and carbon emission reduction targets and ultimately achieve a win–win situation for both the economy and the environment.

Does size matter? Strategies and outcomes by investor size and type in the single-family rental market in Minneapolis and St. Paul

ABSTRACT A growing body of literature has documented the entry of institutional investors into the single-family rental (SFR) market in the United States since the Great Recession. However, less research has delved into differences between investors, particularly public real estate investment trusts (REITs) and private equity (PE) firms. In this paper, we analyze the single-family rental market in the Minneapolis, Minnesota, area and compare spatial strategies and eviction outcomes of various types of SFR landlords, including national investment firms and non-institutional investor owners. We analyze and compare the spatial strategies of different types of landlords including local landlords categorized by size as well as national investors including REITs, PE, and rent-to-own firms. Through multivariate modeling, we find that even after controlling for other factors, owner type and portfolio size are correlated with eviction rates. Compared to tenants living in homes owned by micro landlords (1 property), we estimate that tenants in REIT- and PE-owned properties were 26% more likely and 17% more likely to receive an eviction filing, respectively. Residents of large, non-institutional investor-owned homes were 9% more likely to receive an eviction filing compared to micro-operator owned units. This research adds to our understanding of the SFR market and how tenant outcomes may differ across various ownership dimensions.

Comparative Analysis and Reconstruction of the Fama-French Three-Factor, Five-Factor and Carhart Four-Factor Models on U.S. Consumer Discretionary Market

The stock market has been studied and analyzed by scholars and investors for a long time. This paper aims to compare the applicability of the Fama-French three-factor (FF3F), five-factor (FF5F), and Carhart four-factor models (Carhart 4F) in the U.S. consumer discretionary sector. For the market return, data is obtained from the U.S. Consumer Discretionary Sector ETF (VCR), covering a period from 2014 to 2024, comprising 120 months. Regression results indicate that the FF3F model performs the best, explaining 89.41% of the returns. Although the FF5F and Carhart 4F models show slight improvements, additional factors (WML, RMW, CMA) are statistically insignificant. A restructured model that contains market premium (Rm-Rf), size (SMB), and investment (CMA) factors is proved to be more effective, with market premium and small-cap stocks, as well as high investment firms, driving higher returns. This research provides experiential evidence on the efficacy of factor models in the U.S. consumer discretionary sector's stock market.

Can digital transformation promote high-technology firms’ trans-regional investment?

This study investigates the correlation between the trans-regional investment of high-tech firms and digital transformation. We employ a two-fixed model based on listed firms from 2011 to 2022 to investigate the effects and fundamental mechanisms. Findings suggest that digital transformation can encourage high-tech firms to invest in trans-regional markets. This investment is accomplished by reducing costs, eliminating information asymmetry, and improving specialization and division of labor. This study examines how digital economic development is altering regional economic geography on a small scale, providing novel evidence and insights.

Driving Renewable Energy Innovation Investments: Is Venture Capital a Novel Strategic Choice? Evidence from China

The relationship between venture capital (VC) and corporate innovation has been a topic of debate. Most existing studies have focused on the general effects of VC on innovation investments, neglecting the specific mechanisms. In the global transition toward low-carbon energy, renewable energy (RE) is increasingly becoming a focus area for VC. However, whether VC can effectively stimulate innovation investments in RE firms remains uncertain. This study addressed these gaps by systematically investigating the impact of VC on renewable energy innovation investments (REII) using data from 114 listed RE companies in China from 2011 to 2023. Our findings demonstrate that VC significantly stimulates REII, with a particularly pronounced effect in high-growth and profitable companies, thereby providing new empirical evidence to the ongoing debate on VC's role in corporate innovation. Furthermore, we uncover that VC not only alleviates financial mismatch but also reduces rent-seeking costs, thereby indirectly fostering innovation. These mechanisms help explain how VC can enhance the innovation capabilities of RE companies. Lastly, we find that joint VC, state-owned VC, and long-term VC are especially conducive to promoting innovation. Based on these findings, we offered targeted policy suggestions to boost the innovation potential of China’s RE sector.

Financial flexibility or financial constraints? Zero-leverage firms during the COVID-19 pandemic

Using a large sample of firms across 42 countries, I analyze the investment and debt financing of zero-leverage firms during the COVID-19 crisis to shed light on the zero-leverage puzzle. I find empirical evidence supporting the hypothesis that the motivation behind zero-leverage capital structure is to preserve financial flexibility. Firms that were zero-levered immediately prior to the pandemic showed a smaller decline in investment and increased their leverage more than the levered firms, after controlling for firm-level characteristics. Empirical evidence suggests that zero-leverage firms utilized their excess debt capacity to raise debt financing to finance the cash flow shortfall and maintain the investment rate during the pandemic. The results also highlight the real effects of financial flexibility during crises and its importance in a firm’s capital structure choice.

CEO trustworthiness and investment efficiency: evidence from China

Purpose This study aims to investigate the influence of chief executive officer (CEO) trustworthiness on firm investment efficiency and explores how this relationship varies in different contexts, including product market competition (PMC), institutional investors, media coverage, analyst monitoring and ownership structure. Design/methodology/approach The authors examined a sample of A-Share non-financial firms listed on the Shanghai and Shenzhen Stock Exchanges from 2005–2018 by using panel date regression techniques. The robustness of the findings is affirmed through alternative measures of investment efficiency and various econometric techniques. Further, various endogeneity tests are conducted to confirm that the findings are not affected by potential bias. Findings The authors find a significant positive effect of CEO trustworthiness on firms’ investment efficiency and exhibit that CEO trustworthiness mitigates the issue of underinvestment rather than overinvestment. Further, PMC strengthens the association between CEO trustworthiness and investment efficiency. The influence is more pronounced when institutional investors, media and analyst monitoring are low and in non state-owned firms. Likewise, financial reporting quality is found to be an underlying mechanism for the positive association between CEO trustworthiness and investment efficiency. Research limitations/implications The reliance on a location-specific index of CEO trustworthiness may obscure its true nature, and caution is warranted when generalizing these results to other regions. Practical implications This study suggests that elevating a trustworthy CEO to the firm upper echelon can improve investment efficiency. Policymakers and investors should recognize and leverage the effect of CEO trustworthiness in firms, especially those with weaker governance structures. Originality/value This study enriches the literature about investment efficiency by introducing a novel determinant, CEO trustworthiness and establishes that it acts as an informal social institution that improves firms’ resource utilization in emerging economies with weak governing structures.

Innovation in European SMEs: Exploring the Influence of Investments, Funding, Knowledge, and Intellectual Assets

Abstract This study examines the factors influencing innovation activities among small and medium-sized enterprises (SMEs) across Europe, utilizing data from the European Innovation Scoreboard 2024. SMEs play a vital role in the European economy but face significant challenges in fostering innovation due to limited resources and funding. The research explores the impact of firm investments, public and private funding, knowledge resources, and intellectual assets on SME innovation. Using Partial Least Squares Structural Equation Modeling (PLS-SEM), the analysis found that firm investments and knowledge resources have a significant positive effect on innovation activities. However, public and private funding and intellectual assets showed no significant direct influence on innovation. The findings contribute to a deeper understanding of the complex landscape of SME innovation in Europe, with implications for policy and strategic decision-making. Limitations include the cross-sectional nature of the data and the lack of sector-specific analysis, pointing to areas for further research. Keywords: European SMEs, Innovation activities, Knowledge resources, Intellectual assets, Funding, R&D investments.

An exploration of sustainable innovation investment in emerging markets: An archival study

This study aims to examine the relationship between asymmetric cost behavior and innovation of listed firms in emerging markets, i.e., listed firms in the Indonesian capital market. The Sustainable Development Goals (SDGs) topic has become a hot issue worldwide. Innovation, as a part of SDGs, is a prerequisite to reducing the carbon emissions in a country, including the listed firms on the Indonesian capital market. This study employs quantitative method. To investigate Indonesian-listed firms investment in innovation, we use innovation scores from Thomson Reuters to investigate the investment in innovation by the Indonesian-listed firms. This study utilizes multiple regression tests to examine the empirical model. Our study uses an asymmetric cost behavior model to examine the investment from the firms. We apply data panel to examine the model, i.e., the listed firms of Indonesian capital market during 2010-2019. The result is that innovation influences asymmetric cost behavior. This study also performs a robustness check regarding the empirical model. The result shows that the model is robust. We contribute to the literature on sustainability accounting and the literature on the capital markets. The implication of this study is to give investors information related to the development of sustainability in developing markets. The developing market is a promising investment for investors worldwide. This study also gives feedback to regulators related to the development of innovation in developing markets, particularly Indonesian capital market.

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.

MANAGING THE “S” IN ESG: HOW ASSET MANAGERS DISCLOSE AND CONSIDER HUMAN RIGHTS

Objective: The purpose of the research was to evaluate the commitment and due diligence measures directed at human rights in a sample of the largest international and European asset management companies, under OECD guidelines. Theoretical Framework: According to the OECD, companies can impact most internationally recognised human rights. However, there is a lack of studies that directly assess the human rights due diligence in investment companies. Method: A documentary and qualitative analysis of 45 investment companies was applied. Five key performance indicators were created to measure human rights commitment and due diligence practices such as disclosure of human rights policies, cascading of compliance/obligations to investees, due diligence before and during the investment and collaboration with industry and non-industry initiatives. All companies were classified and rated according to these criteria. Results and Discussion: This research reveals that there is a dichotomy between recommendations of human rights integration in investment and actual commitment and compliance, indicating that only a minority of companies were compliant and committed to considering human rights in their investment. Research Implications: The results provide an initial benchmark of the state of the commitment towards human rights in the investment sector, allowing for further investigations to be conducted to assess the development of this dimension of ESG and CSR, particularly in this sector Originality/Value: The analysis consisted of accessing and evaluating the public information of the larger investment firms from an individual investor perspective, which provides an innovative view of human rights awareness and compliance in the investment sector.

The power of oversight: institutional investors as moderators of the earnings quality-information asymmetry nexus in Europe

PurposeWhile there is some evidence of a relationship between earnings quality and information asymmetry, there is limited evidence on the moderating role of institutional investors in this relationship. To fill this gap, this study aims to examine how institutional ownership affects the relationship between earnings quality and information asymmetry, with a focus on the impact of different investment horizons.Design/methodology/approachThis study uses a sample of listed European firms from 2000 to 2022. Earnings quality is measured using the McNichols (2002) modification of the Dechow and Dichev (2002) model. The analysis examines the moderating effect of institutional ownership on the relationship between earnings quality and information asymmetry.FindingsThis study finds that the relationship between earnings quality and information asymmetry is more pronounced in firms with a higher percentage of institutional ownership. This study finds that the monitoring role of long-term institutional investors is more effective than that of short-term institutional investors. This study also finds that the influence of institutional investors is more significant in firms with incentives to engage in earnings management.Practical implicationsThe findings provide evidence suggesting that institutional investors are an important class of investors in terms of exercising an effective monitoring role to mitigate information asymmetry and demand higher earnings quality from their investee firms. These findings are informative for many financial reporting participants, including investors, analysts, regulators and managers.Originality/valueThis study extends the existing research examining the relationship between earnings quality and information asymmetry (e.g. Affleck-Graves et al., 2002; Ascioglu et al., 2012; Bhattacharya et al., 2013; Jayaraman, 2008; Liu and Elayan, 2015) by examining the moderating effect of institutional ownership on this relationship. It further contributes to the literature by distinguishing between long- and short-term institutional investors and their respective monitoring roles. In addition, this study broadens the geographical scope of the research by using cross-country data from European firms, providing evidence that country-specific factors do not uniformly affect the relationship between earnings quality and information asymmetry.

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.

The Global (Mis)Allocation of Capital

The allocative efficiency of capital flows is one of the oldest and most contentious questions. We answer it by matching cross-border securities holdings reported in the US external statistics from 1995 to 2022 with the corresponding firm-level measures of allocative efficiency. We find that US investors tilt their international equity investment toward firms with high MRPK and markups, thereby fostering their potential for growth. Foreign investors tilt their holdings toward US firms with high productivity and intangible capital. A horse race shows that productivity is the best predictor of foreign investment in US firms and MRPK for US investment in foreign firms. Both US and foreign firms that receive more international funding increase spending on intangible capital, and foreign firms also increase tangible capital. The results are stronger for more productive firms.

Downward Revision of Investment Decisions after Corporate Tax Hikes

This paper estimates the causal effect of corporate tax hikes on firm investment based on more than 1,400 local tax changes. By observing planned and realized investment volumes in a representative sample of German manufacturing firms, we can study how tax hikes induce firms to revise their investment decisions. On average, the share of firms that invest less than previously planned increases by 3 percentage points after a tax hike. This effect is twice as large during recessions. (JEL D22, E32, G31, H25, H32, H71, L60)