Investment Efficiency Research Articles

Environmental and social disclosure, managerial entrenchment, and investment efficiency

This study investigates the effect of environmental and social (E&S) disclosure and managerial entrenchment on investment efficiency. E&S disclosure increases not only capital accessibility but also external monitoring of entrenched managers’ actions. We develop a theoretical model that demonstrates how these benefits and costs of firms’ voluntary E&S disclosure affect investment efficiency. Using a large sample of U.S.-listed firms over the period 2016–2022, we test the model’s predictions and provide empirical evidence suggesting that E&S disclosure is positively associated with investment efficiency and that this effect is stronger for firms with lower managerial entrenchment or those disclosing more financially material E&S information. Our study contributes to the investment efficiency literature by demonstrating the relevance of an incentive-compatible mechanism reflecting managers’ choice of E&S voluntary disclosure to the efficient capital allocation.

Tax Governance and Corporate Labor Investment Efficiency: A Quasi‐Natural Experiment From China

Tax Governance and Corporate Labor Investment Efficiency: A Quasi‐Natural Experiment From China

Information asymmetry and investment efficiency: the role of blockholders

PurposeThis study aims to examine the extent to which information asymmetry affects investment efficiency and whether the presence of blockholders moderate this relationship.Design/methodology/approachWe employ the data of firms listed on the Malaysian stock exchange for the period 2010–2018, to compose our sample. Our final sample includes the 100 largest non-financial firms based on market capitalization. Collectively, these 100 companies contribute 84.2% to the total market capitalization (MYR 1,730bn) which is representative of the whole market. The ordinary least squares regressions were used as the main estimation technique. The system generalized method of moments, two-stage least squares and propensity score matching were also used, to address potential endogeneity concerns.FindingsWe document a positively significant association of information asymmetry with investment inefficiency. These results imply that information asymmetry reduces investment efficiency and enhances sub-optimal investments. We also document that blockholders negatively moderate the relationship of information asymmetry with investment inefficiency. Further analyses show that investment inefficiency is higher in low-growth firms than in high-growth firms because of higher information asymmetry.Research limitations/implicationsWe focus on Malaysia, which is a predominantly common-law Anglo-Saxon country. Graff (2008) documented that the investors are treated differently across legal systems and there are differences between the continental European and Anglo-Saxon countries. La Porta et al. (1999) documented that investors tend to have more legal protection in Anglo-Saxon countries. Therefore, our results may not be generalized to countries with different legal systems.Practical implicationsAn important implication of our findings is that stakeholders may encourage the presence of blockholders and give them a voice to weaken the positive relationship between information asymmetry and investment inefficiency.Originality/valueThis study contributes to the contingency literature by investigating the moderating effect of an important governance mechanism, i.e. the presence of blockholders on information asymmetry-investment efficiency nexus. Despite being important, this moderating effect has been largely overlooked in the literature. Our study contributes by providing an understanding of how blockholders can influence investment decisions, offering insights for academics, investors and policymakers focused on improving the efficacy of investment decisions and governance structure.

Environmental, Social, and Governance Performance and Investment Efficiency: The Energy Sector Indonesia

Environmental, Social, and Governance Performance and Investment Efficiency: The Energy Sector Indonesia

Economy-wide rebound and the returns on investment in energy efficiency

In this paper we re-examine the relationship between global Gross Domestic Product (GDP), Primary Energy Use (PEU) and Economic Energy Efficiency (EEE) to explore how investment in energy efficiency causes rebound in energy use at the global scale. Assuming GDP is a measure of final useful work, we construct and fit a biophysics-inspired nonlinear dynamic model to global GDP, PEU and EEE data from 1900—2018 and use it to estimate how energy efficiency investments relate to output growth and hence economy-wide rebound effects. We illustrate the effects of future deployment of enhanced energy efficiency investments using two scenarios through to 2100. The first maximizes GDP growth, requiring energy efficiency investment to rise ~ twofold. Here there is no decrease in PEU growth because economy-wide rebound effects dominate. The second scenario minimizes PEU growth by increasing energy efficiency investment ~ 3.5 fold. Here PEU and GDP growth are near fully decoupled and rebound effects are minimal, although this results in a long run, zero output growth regime. We argue it is this latter regime that is compatible with the deployment of enhanced energy efficiency to meet climate objectives. However, while output growth maximising regimes prevail, efficiency-led pledges on energy use and emissions reduction appear at risk of failure at the global scale.

The impact of mixed-ownership reform on zombie firms: Evidence from Chinese listed SOEs.

Clearing out zombie firms is a critical challenge for both developed and developing countries. This article draws upon data from Chinese listed SOEs to examine the impact of mixed-ownership reform on zombie firms. The findings indicate that non-state-owned shareholders participating in mixed-ownership reform by appointing directors can help reduce the possibility of SOEs becoming zombie firms, while participating in mixed-ownership reform through shareholding is not significant. Moreover, the impact of mixed-ownership reform on zombie firms is more pronounced for firms in competitive industries and firms located in the eastern region of China. Mechanism analysis reveals that the reduction of inefficient investment has a positive mediating effect between mixed-ownership reform and zombie firms.

Technology investment and insurer efficiency

AbstractWe examine the role of technology expense and asset data items with insurer efficiency. We show that insurers increasing investment in technology classified as expenses, experience increases in allocative efficiency the following year. Insurers that increase expenditures classified as technology assets realize decreases in cost and allocative efficiency the next year. In addition, we find that expensed technology contains different information than those classified as assets with the association of expenditures in assets with efficiency dominating expensed technology. Our findings support that expensed technology items are for innovative applications and technology assets are used to support general business operations. We also explore the possibility that the reduction of commissions to agents is a mediator through which technology expenses affect efficiency, but do not find support for this mediation.

Heterogeneous political connections and corporate overinvestment: evidence from Malaysian firms

PurposeThis paper examines the relationship between heterogeneous political connections and corporate overinvestment.Design/methodology/approachBased on a comprehensive Malaysian dataset of 834 publicly listed companies from 2000 to 2022, the authors employed multivariate ordinary least squares regression to test the relationship.FindingsDespite different types of political connections, the findings demonstrate a positive relationship between political connections and corporate overinvestment. In particular, the association is more profound in government-linked companies (GLCs) but weaker in firms that developed political ties through family members of ruling elites. Further analysis reveals that the “helping hand” effect is only observed in GLCs and firms with politically connected directors and businessmen, whereas the “grabbing hand” effect is observed among firms connected through board, businessmen, and family ties. Moreover, the relationship is more persistent among firms with politically connected directors and businessmen around the regime change.Research limitations/implicationsRegardless of the types of political connections, the findings show that politically connected firms tend to engage in rent-seeking through political patronage networks and high levels of government interference in resource allocation. Therefore, a more sophisticated monitoring system should be developed within the political patronage networks to reduce the likelihood of different types of political-business collusion. In terms of research limitations, the research design does not consider the influence of financial constraints and management efficiency. Future research could explore these facets to comprehensively understand the dynamics between political connections and corporate investment decisions.Practical implicationsThe evidence informs market participants about the relationship between heterogeneous political connections and corporate overinvestment, reinforcing previous findings that crony capitalism, political patronage, agency problems, and weak governance are well-entrenched in Malaysia’s emerging economy. The government should acknowledge these concerns by enacting anti-corruption campaigns and promoting a fair business environment. In the meantime, policymakers might redesign regulations and revise corporate governance frameworks to substantially reduce the value of political connections, thereby diminishing the bargaining power of politicians.Social implicationsAs corporate investment efficiency has a considerable impact on firm value, investment decisions that enhance firm value will increase share price and maximise shareholder value. Conversely, firms may damage shareholder value if they overinvest or undertake projects that do not yield sufficient. Hence, the findings of this study may assist investors in making more informed judgements, particularly by understanding different types of business-government relations, as political connections are one of the determinants of corporate overinvestment.Originality/valueThis study reveals that the degree to which overinvestment issues manifest within firms is influenced by the nature of the political connections those firms possess. This indicates that politically connected firms should not be regarded as a homogenous group of firms.

Does the digital economy enhance common prosperity? Examining the mediating influence of resilience in environmental investment

BackgroundThe link between the digital economy and prosperity is well established. However, the mechanism underlying the relationship between the digital economy and common prosperity is yet to be investigated. Study rationale and purposeThe main purpose of this study is to address this mechanism by examining the extent to which the digital economy has optimized regional investments in protecting the environment, particularly the resilience of environmental investment, thus influencing common prosperity. We draw upon insights from the fault tolerance and social inclusion theories to develop a model that illuminates how the digital economy enhances common prosperity through the resilience of environmental investment. MethodsWe used econometric, gray predictive modeling methods for data analysis. We propose environmental investment resilience, including flexibility and stability, as a mediating mechanism through which the digital economy can improve common prosperity. This study selected Chinese cities in 2010–2021 as a sample for the experiment and employed a difference-in-differences model to examine whether the digital economy enhances regional common prosperity. Principal findingsThe results show that the digital economy improves common prosperity through the resilience of environmental investment. Specifically, the digital economy enhances the flexibility and stability that are two indicators of resilience in environmental investments, which in turn enhances the level of common prosperity. Moreover, the relationship between environmental investment resilience and common prosperity is strengthened by inaugurating a high-speed rail. In addition, this relationship is weakened in an aging population. Finally, we focused on environmental investment efficiency using a gray prediction model. The results show that environmental investment efficiency generally shows an upward trend in fluctuation, which proves the robustness of our results.

Impact of Corporate Tax Avoidance and Philanthropy on Investment Efficiency. Evidence from Pakistan.

Purpose- The purpose of such a study is to investigate the impact of corporate tax avoidance and philanthropy on investment efficiency in Pakistani firms. Study Design/Methodology/Approach - The study's population comprises companies listed on the Pakistan Stock Exchange. A sample of 88 companies that are listed on the Pakistan Stock Exchange was used in the study. This study covers a period comprising 11 years from 2011 to 2021 by using panel data analysis. In this study, secondary data was collected and analyzed through Ordinary Least Squares (OLS). The OLS estimator is most appropriate to analyze panel data. Findings- The findings reveal a considerable link between corporate tax avoidance, corporate philanthropy, and investment efficiency. It implies that companies will have to make higher philanthropic and tax payments. According to the findings, investment efficiency encourages managers to use corporate tax avoidance to combat tax avoidance practices. Practical Implications—We emphasize the special contribution that corporate philanthropy makes to increasing investment efficiency and the managerial ramifications of this practice. Originality/Novelty - The current study is the first to focus on links between corporate tax avoidance, corporate philanthropy, and investment efficiency in Pakistan. Corporate tax avoidance, investment efficiency, and corporate philanthropy all address the unique dynamics and problems of the country while offering significant value and fresh perspectives. This research may support Pakistan's economic growth and sustainable development by bettering corporate practices, policies, and socioeconomic outcomes.

Banking market structure and corporate investment efficiency

The study examines the link between bank competition and firms’ capital investment efficiency. Utilizing a unique dataset comprising Vietnamese listed firms from 2007 to 2022, we suggest that heightened bank competition, as reflected by lower values of concentration ratios, the Lerner index, and the Boone indicator, raises firms’ investment efficiency. Further analysis reveals that bank competition increases investment efficiency specifically in the form of mitigating the underinvestment issue. The validity of the result holds through numerous robustness tests, especially with careful consideration of endogeneity concerns. Through mechanism tests, our study reveals that increased bank competition elevates corporate investment efficiency by mitigating firms’ financing constraints, offering more bank credit, and reducing financing costs. In cross-sectional analysis, we document that the relationship between bank competition and capital investment efficiency is stronger for firms with closer bank-firm ties, greater investment opportunities, and weaker financial positions (captured by firm size, state ownership, and listing location). Further, we observe that the influence of bank competition is attenuated during macroeconomic shocks, as exemplified by the financial crisis and the coronavirus pandemic.

Pengaruh Konservatisme Akuntansi, Tata Kelola Perusahaan Dan Struktur Kepemilikan Terhadap Efisiensi Investasi

This research aims to examine the effect of accounting conservatism, corporate governance and ownership structure on investment efficiency in financial companies listed on the Indonesia Stock Exchange during the period 2017-2019. The sample of this study was selected by using purposive sampling and obtained as many as 114 data with 38 companies per year. The hypothesis testing in this study using multiple linear regression model. Partially, the results indicates that managerial ownership has an effect on investment efficiency. While the other four variables, namely accounting conservatism, independent commissioners, audit committees, and institutional ownership have no effect on investment efficiency.

ESG Performance, Economic Policy Uncertainty, and Labor Investment Efficiency

ESG Performance, Economic Policy Uncertainty, and Labor Investment Efficiency

임원의 재무전문성이 퇴직연금 적립률에 미치는 영향

[Purpose] This study examines the impact of executives’ financial expertise on the funding level of defined benefit pension plans. On one hand, if executives with high financial expertise prefer to utilize available cash for more efficient investment options rather than locking it up in pension contributions, a negative relationship is expected. On the other hand, if executives with high financial expertise aim to increase the current funding level to alleviate future cash constraints or are concerned about negative evaluations in the capital market, a positive relationship is expected. The empirical analysis seeks to determine whether executives’ financial expertise lowers or raises the pension funding level. [Methodology] The sample for analysis consists of companies listed on the KOSPI and KOSDAQ from 2012 to 2022 that have adopted a defined benefit pension plan. Although the pension system was implemented in 2005, the initial period is excluded due to the low adoption rate of pension plans and the low funding ratio of defined benefit assets at the beginning of the system’s implementation. Executives’ financial expertise is measured by executives with keywords in their past careers such as finance, accounting, treasury, or CFO, and the pension funding level is measured by the ratio of pension assets to pension liabilities. [Findings] The empirical analysis shows that the higher the proportion of executives with financial expertise, the lower the pension funding level. This result can be interpreted as companies with executives having high financial expertise maintaining a lower funding level due to the high opportunity cost of investing available cash in pension contributions. Additionally, we find that the negative relationship between executives’ financial expertise and the pension funding level is driven by the subsample with a high funding level. [Implications] The results of this study provide evidence that for the pension system to act as a means of securing workers’ retirement income, an improvement in the return on pension assets is necessary.

Accounting statements in the investment strategies of retail investors

Subject. The article investigates accounting (financial) statements as a source of information for retail investors, and tools to analyze and evaluate the investment attractiveness of a company as a way to reduce the risk of inefficient investment. Objectives. We focus on identification of the place and role of accounting in investment strategies of retail non-professional investors seeking to improve their financial situation by investing in the shares of Russian and foreign companies. Methods. The study draws on general scientific principles of cognition, including the analysis of statistical information, induction, synthesis, etc. Results. The paper presents the results of a survey of retail non-professional investors with experience in investment activities. The responses of respondents involved in the survey on the basis of an electronic platform are presented in a tabular form. We demonstrated the advantages and disadvantages of using various sources of information. The study revealed the key factors of investment attractiveness that retail investors take into account when choosing optimal investment objects. Conclusions. The most competent investors use the tools of accounting analysis and investment attractiveness assessment to build an effective long-term investment strategy. In addition to accounting statements, investors consider some non-financial parameters, like company reputation, brand awareness, ESG rating, etc.

Mean Absolute Directional Loss as a new loss function for machine learning problems in algorithmic investment strategies

This paper investigates the issue of an adequate loss function in the optimization of machine learning models used in the forecasting of financial time series for the purpose of algorithmic investment strategies (AIS) construction. We propose the Mean Absolute Directional Loss (MADL) function, solving important problems of classical forecast error functions in extracting information from forecasts to create efficient buy/sell signals in algorithmic investment strategies. MADL places appropriate emphasis not only on the quality of the point forecast but also on its impact on the rate of achievement by the investment system based on it. The introduction and detailed description of the theoretical properties of this new MADL loss function are our main contributions to the literature. In the empirical part of the study, based on the data from two different asset classes (cryptocurrencies: Bitcoin and commodities: Crude Oil), we show that our new loss function enables us to select better hyperparameters for the LSTM model and obtain more efficient investment strategies, with regard to risk-adjusted return metrics on the out-of-sample data.

Techno-economic assessment of high-temperature aquifer thermal energy storage system, insights from a study case in Burgwedel, Germany

High-temperature aquifer thermal storage (HT-ATES) is an effective method to mitigate the increasing greenhouse gas emissions, and it is attracting industry attention as an alternative to traditional fossil fuels for heating and cooling. However, the uncertainty of exploration and long profit cycles impede the popularization of HT-ATES technology. In this paper, to optimize HT-ATES evaluation and make the results more convictive, we demonstrate a numerical study based on a real district and a proven aquifer. An integrated HT-ATES model includes the wellbore and aquifer is used to simulate the fluid flow and heat transfer. Moreover, a dynamic economic assessment is demonstrated depending on the HT-ATES fluctuation performance. A 30-year HT-ATES cycling simulation shows that the wellbore and aquifer have had a continuous heating loss since the operation started. Working well and balancing the well lost 2.7% and 2.2% of total energy through the wellbore. The aquifer lost 4.1% of total energy due to heating transfer to overburden and other layers. HT-ATES could recover around 90% of stored total energy. The HT-ATES economic performance is affected by the heating store and production cycling, the benefit mainly comes from the heating production season. The initial investment and heat exchange efficiency between the HT-ATES & end-application system determines the levelized heat (LCOH) cost and payback time, the optimist case still needs 3 years to be profitable. HT-ATES have considerable green benefits, it could reduce local CO2 emissions 1937 t/year.

The relationship between financial constraints and investment efficiency

AbstractThis study examines how financial constraints relate to firm‐level investment efficiency. Prior research theorizes that corporate borrowing by issue of risky debt induces suboptimal capital investment spending. We extend this research to examine whether firm‐level financial constraints and internal investment efficiency are significantly related. We measure firms’ degree of overall financial constraint following the procedure developed by Whited and Wu. Our results indicate that among highly financially constrained firms, overall financial constraints are positively associated with investment, and higher financial constraints are more likely to result in greater investment inefficiency. Furthermore, we find that this relationship is more prominent for companies with high free cash flow, high bankruptcy likelihood, and high growth potential. Our findings that financial constraints have significant influence on corporate investment efficiency should be of interest to company managers, investors, and regulators alike.

Has the Transparency Directive benefited the United Kingdom?

Post Brexit, this study contributes to assessing the efficacy of the European Union (EU) Transparency Directive (TPD) in attaining its regulator-specified goals for the United Kingdom (UK) capital market. During its adoption in 2004, the Commission of European Communities and the UK Government argued that TPD adoption should increase firms’ financial reporting quality and investment efficiency while decreasing firms’ cost of capital and information asymmetry. Using several alternative test variables in a sample of FTSE All-Share Index firms, I find evidence consistent with these four goals following TPD adoption. Additionally, I find that firms have lower cash holdings and higher dividend payouts following TPD adoption. Most of these trends do not reverse after the 2014 TPD amendment that abolished mandatory quarterly trading updates. This is the first study to examine the association between TPD adoption and firms’ cost of capital, investment efficiency, cash holdings, and dividend payout. Collectively, my results suggest that the primary regulatory goals of the TPD are being attained in the UK. Therefore, a case can be made for the relevance of the TPD and the resulting Disclosure and Transparency Rules in UK post Brexit.

How mixed ownership affects investment efficiency? evidence from state-owned enterprises in China.

The inefficiency observed in investment within state-owned enterprises presents a significant practical challenge that can affect the sustainable development of China's economy. To address this issue, this study comprehensively explores the intricate mechanisms underlying the governance implications of mixed ownership on the investment efficiency of listed companies. Drawing on unbalanced panel data encompassing Shanghai and Shenzhen Stock Exchange A-share listed companies in China spanning the period from 2008 to 2022, this study employs a fixed-effects model to unveil the nuanced ways in which mixed ownership influences investment efficiency through the lens of agency costs. This study transcends the boundaries of traditional agency conflicts between managers and shareholders. It delves deeper, illuminating the diverse effects of agency conflicts between significant controlling shareholders and minority shareholders. The results revealed a noteworthy positive correlation between mixed ownership and investment efficiency, and verified the intermediary role of agency costs between mixed ownership and investment efficiency, which is an important result of our research. Heterogeneity analysis indicates that the relationship between the two can be affected by external events, such as during the COVID-19 pandemic, investment efficiency is not the most concerned issue for enterprises. The findings have practical implications for practitioners and policymakers, as they offer avenues for optimizing investment strategies and fostering efficient and effective corporate governance practices.