The Relationship Among Managerial Sentiment,Corporate Investment,and Firm Value: Evidence from Taiwan

This study has two objectives: to examine the relationship between managerial sentiment and corporate investment and to examine the relationship between investment and firm value. We use a sample of Taiwanese firms and find that an optimal level of investment that maximizes a firm's value does exist and that it depends upon the quality of the investment opportunities. In addition, the empirical results show that when firms have valuable (nonvaluable) investment opportunities, managerial optimism (pessimism) makes overinvestment (underinvestment) more likely. Interestingly, the overinvestment (underinvestment) phenomenon for optimistic (pessimistic) managers differs significantly between valuable project and nonvaluable project firms.     

The influence of corporate social responsibility on investment efficiency and innovation

We examine two important channels through which corporate social responsibility (CSR) affects firm value: investment efficiency and innovation. We find that firms with higher CSR performance invest more efficiently: these firms are less prone to invest in negative net present value (NPV) projects (overinvestment) and less prone to forego positive NPV projects (underinvestment). We also find that firms with higher CSR performance generate more patents and patent citations. Mediation analysis indicates that firms with higher CSR performance are more profitable and valuable, consequences partially attributable to efficient investments and innovation. These results, robust to alternate model specifications, lend support to enlightened stakeholder theory.     

Institutional investors' site visits,information asymmetry,and investment efficiency

Based on data from Shenzhen A-share listed companies from 2012 to 2017, this paper studies the relationship between institutional investors' site visits (SVs) and corporate investment efficiency and its intrinsic transmission mechanism. Institutional site visits (SVs) can effectively mitigate firms' underinvestment, but it has no significant inhibitory effect on overinvestment. The conclusion still holds after using the instrumental variables and alternative measurements of investment efficiency. Mechanism analysis finds that site visits can alleviate underinvestment by reducing information asymmetry. We further document that the impacts are more pronounced for brokerages, funds, and private equity firms, firms with higher levels of internal governance, and firms' regions with better marketization. Our study suggests that institutional SVs mainly contribute to mitigating underinvestment rather than inhibiting overinvestment. This study provides practical insights for regulating corporate investment decision-making and is of significant practical significance for promoting the healthy development of enterprises.     

The Capital Budgeting Process: Incentives and Information

We study the capital allocation process within firms. Observed budgeting processes are explained as a response to decentralized information and incentive problems. It is shown that these imperfections can result in underinvestment when capital productivity is high and overinvestment when it is low. We also investigate how the budgeting process may be expected to vary with firm or division characteristics such as investment opportunities and the technology for information transfer.     

Underinvestment vs. overinvestment: Evidence from price reactions to pension contributions

Mandatory contributions to defined benefit pension plans provide a unique identification strategy to estimate the market's assessment of the value of internal resources controlling for investment opportunities. The price decrease following a pension-induced drop in cash is magnified for firms that appear a priori more financially constrained, suggesting a negative effect of financing frictions on investment. In contrast, low control on managerial discretion attenuates the negative price reaction to contributions consistent with empire-building theories. While overinvestment seems to be the prevalent distortion in a panel of large firms, underinvestment appears to dominate in a sample that is more representative of the cross-section of listed companies.     

政治关联、融资渠道与民营企业非效率投资研究

从自由现金流和银行贷款两方面考量2007~2010年沪深A股民营上市企业政治关联对企业非效率投资的影响。结果表明,存在政治关联民营企业容易利用自由现金流和银行长期贷款进行过度投资;存在地方政治关联的民营企业,其自由现金流的过度投资更严重,中央政治关联企业则存在更多利用长期贷款进行过度投资的行为。同时,投资不足的民营企业政治关联降低了企业投资对于自由现金流和银行短期贷款的依赖;中央政治关联的民营企业投资对于银行长期贷款的敏感度更高,地方政治关联企业未发现类似的显著影响。     

Government integrity and corporate investment efficiency

We explore the relation between government integrity and firms’ investment efficiency in the context of China’s deepening reforms and its strengthening the social credit system. We find that government integrity is positively associated with the investment efficiency of listed companies in China. Government integrity is negatively related to corporate underinvestment, but insignificantly related to corporate overinvestment. Higher government integrity reduces underinvestment in non-state-owned firms, but this relation is not significant in state-owned firms. Furthermore, we find that the negative relation between government integrity and underinvestment is only significant for firms in industries that receive supportive government policies. This study enriches research on corporate investment by adopting the perspective of government integrity, and supplements the literature on government integrity and its economic consequences. Our study also provides micro-level empirical evidence that strengthening government integrity will promote the economic transformation of China.     

Information Asymmetry and Corporate Investment Decisions: A Dynamic Approach

This paper develops a dynamic model of the financing and operating decisions of firms in the presence of information asymmetry. When the value of growth opportunities is not fully recognized, securities are undervalued, thus influencing the financing and investment decisions. The agency‐based underinvestment problem is re‐examined under information asymmetry. For firms with greater growth opportunities, the investment distortion resulting from information asymmetry is especially significant. Information asymmetry also increases the expected bankruptcy cost. The cost of information asymmetry in terms of both the firm value and the information spread under the optimal capital structure could be substantial.     

MAINBANKS AND INVESTMENT EFFICIENCY IN FINANCIAL DISTRESS

We explore the effects of mainbanks on investment efficiency in financial distress. The previous literature argues that firms with close financial relationships with banks have lower costs of financial distress because of a reduced underinvestment problem. Although benefits may accrue to such close relationships, we contend shortcomings are possible as well. A firm in financial distress without a mainbank may be forced to reduce investment or sell assets to a buyer who has a higher value. However, for a firm with a mainbank, this disciplinary force is weakened. To firms with poor investment opportunities, the presence of mainbanks may actually induce an overinvestment problem. The empirical findings reported here are consistent with this idea. JEL classification: G31, G33, G34.     

Financial reporting quality,debt maturity and investment efficiency

This study, conducted with a sample of Spanish listed companies during the period 1998–2008, examines the role of financial reporting quality and debt maturity in investment efficiency. The results show that financial reporting quality mitigates the overinvestment problem. Likewise, lower debt maturity can improve investment efficiency, reducing both overinvestment and underinvestment problems. We further find that financial reporting quality and debt maturity are mechanisms with some degree of substitution in enhancing investment efficiency: firms with lower (higher) use of short-term debt, exhibit higher (lower) financial reporting quality effect on investment efficiency.