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.     

Leverage and investment under a state-owned bank lending environment: Evidence from China

This study examines the relations between leverage and investment in China's listed firms, where corporate debt is principally provided by state-owned banks. We obtain three major findings. First, there is a negative relation between leverage and investment. Second, the negative relation between leverage and investment is weaker in firms with low growth opportunities and poor operating performance than in firms with high growth opportunities and good operating performance. Third, the negative relation between leverage and investment is weaker in firms with a higher level of state shareholding than in firms with a lower level of state shareholding. Overall, our results are consistent with the hypothesis that the state-owned banks in China impose fewer restrictions on the capital expenditures of low growth and poorly performing firms and also firms with greater state ownership. This creates an overinvestment bias in these firms.     

Cash Flow Sensitivity of Investment

Investment cash flow sensitivity is associated with both underinvestment when cash flows are low and overinvestment when cash flows are high. The accessibility of external capital is positively correlated with cash flows, intensifying investment cash flow sensitivity. Managers actively counteract the variations in internal and external liquidity by accumulating working capital when liquidity is high and draining it when liquidity is low. These results imply that cash flow sensitive firms face financial constraints, which are binding in low cash flow years. Traditional indicators of financial constraints, such as size and dividend payout, successfully distinguish firms that may potentially face constraints, but are less successful in distinguishing between periods of tight and relaxed constraints. These periods are much more clearly separated by the KZ index, which, on the other hand, is less successful in identifying firms that are likely to face liquidity constraints.     

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.     

Effect of ownership structure on underinvestment and overinvestment: empirical evidence from Spain

This paper investigates how ownership affects the investment‐cash flow sensitivity by taking into account the non‐linearities of ownership with respect to firm value, and using a free cash flow index and a criterion for financial constraints to disentangle underinvestment and overinvestment. Interesting results are provided by estimating using the Generalized Method of Moments to eliminate the endogeneity problem. The alignment of interests between owners and managers and the monitoring by concentrated ownership both alleviate the sensitivity of investment to cash flow both in underinvestor and overinvestor firms. However, in the presence of controlling owners, underinvestment and overinvestment are exacerbated.     

The implied cost of equity capital,corporate investment and chief executive officer turnover

This study investigates how the cost of equity capital, along with corporate investment, affects chief executive officer (CEO) turnover decisions. We hypothesize that the cost of equity conveys information about firm performance uncertainty that is informative of CEO talent. Consistently, our empirical results show that the likelihood of CEO turnover is positively associated with the implied cost of equity, after controlling for earnings and stock performance measures and risk factors. Additional analysis of reverse causality supports the causal effect of the high cost of equity on CEO dismissals. We also find that the positive association is more pronounced for firms that are more likely to suffer from underinvestment problems. These results suggest that the cost of equity plays a more important role in assessing CEO performance when the firm needs more external equity capital to pursue investment opportunities.     

The impact of firm size on dynamic incentives and investment

Recent studies conclude that small firms have higher but more variable growth rates than large firms. To explore how this empirical regularity affects moral hazard and investment, we develop an agency model with a firm size process having two features: the drift is controlled by the agent's effort and the principal's investment decision, and the volatility is proportional to the square root of size. The firm improves on production efficiency as it grows, and wages are back‐loaded when size is small but front‐loaded when it is large. Furthermore, there is underinvestment in a small firm but overinvestment in a large firm.     

CEO任期与企业资本投资

本文基于管理者在一定约束条件下追求自身利益最大化的逻辑思路,分析管理者任期与企业资本投资之间的关系,重点检验我国上市公司CEO的既有任期和预期任期对企业投资水平和投资效率的影响。研究结果发现,在管理者任期与投资水平的关系上,国有企业与非国有企业表现一致:CEO的既有任期越长,企业的投资水平越高;CEO的预期任期越短,企业的投资水平越低。在管理者任期与投资效率的关系上,国有企业与非国有企业表现不同:非国有企业的过度投资程度与CEO的既有任期及预期任期无关,而国有企业CEO的既有任期越长,过度投资问题越严重;CEO的预期任期越短,过度投资问题越能得到缓解。     

会计稳健性与上市公司投资行为——基于资产减值角度的实证分析

本文从资产减值角度考察会计稳健性对公司投资行为的影响。稳健性要求公司推迟确认不完全确定的收入,但是尽快确认可能发生的损失。在本文中,我们发现,由于及时确认损失有助于促使公司及早停止低效率的投资,因此资产减值准备计提会对公司的过度投资产生制约作用。由于及时确认损失也会促使厌恶风险的经理人放弃对风险较大但却可能盈利的项目进行投资,因此资产减值准备计提也会导致公司投资不足。我们的研究为公司过度投资问题的解决提供了一个新视角,同时也说明会计稳健性具有一定的两面性,该原则的运用应当权衡其利弊。     

Banking system reform and investment–cash flow relation: Case of a small transition economy

This research examines the effect of banking system reform which is measured by foreign bank's presence on investment–cash flow relation in a context of a small transition economy. The U-shape relation between investment and cash flow is found. We also find evidence that the presence of foreign banks in Vietnam results in decreasing in dependence on local banks and has changed corporate investment behaviors. Company investments are less reliant on internal cash flow in the post reform period. Although overinvestment of state controlled firms is not reduced but underinvestment problem of non-state-controlled listed firms is mitigated due to better accessibility to bank loans. The investigated relation between investment and leverage is robust for this conclusion.     

Debt contracts in the presence of performance manipulation

Empirical evidence suggests that firms often manipulate reported numbers to avoid debt covenant violations. We study how a firm’s ability to manipulate reports affects the terms of its debt contracts and the resulting investment and manipulation decisions that the firm implements. Our model generates novel empirical predictions regarding the use and the level of debt covenant, the interest rate, the efficiency of investment decisions, and the likelihood of covenant violations. For example, the model predicts that the optimal debt contract for firms with relatively strong (weak) corporate governance (i.e., cost of manipulation) induces overinvestment (underinvestment). Moreover, for firms with strong (weak) corporate governance, an increase in corporate governance quality leads to tighter (looser) covenant, more (less) frequent covenant violations and lower (higher) interest rate. Our model highlights that the interest rate, which is a common proxy for the cost of debt, neither accounts for the distortion of investment efficiency nor the expected manipulation costs arising under debt financing. We propose a measure of cost of debt capital that accounts for these effects.     

Economic policy uncertainty and firm investment decisions: Dilemma or opportunity?

In an environment of economic policy uncertainty (EPU), how to improve efficiency and optimize the scale of firm investment is an important topic worthy of attention. This paper examines the impact of EPU on firms' investment decisions, using Chinese A-share listed companies from 2007 to 2019 as a research sample. The study finds that macro EPU inhibits the increase of firms' investment scale and efficiency while exacerbating the risk of overinvestment or underinvestment. Local EPU enhances a firm's investment scale but simultaneously exacerbates the risk of over- or underinvestment, which in turn inhibits investment efficiency. The mechanism test shows that, first, macro EPU promotes firms' R&D investment but inhibits their green investment. In contrast, local EPU inhibits R&D investment and promotes green investment. Second, macro EPU has a significant negative effect on firms' business performance, while local EPU has a smaller effect. Therefore, in an uncertain environment, the government should actively stabilize the macroeconomic environment, and firms should actively optimize investment structures and improve their risk prevention mechanisms.