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The purpose of this paper is to examine how investors’ valuation of cash holdings is related to firm-level investment.

As prior studies note that holding excess cash serve as a driver to would be over-investing, and that over-investment imposes substantial agency costs on shareholders, the authors focus on the value implications of holding cash in the presence of over-investment from the perspective of shareholders.

By examining the publicly traded companies on Taiwan stock market, the authors uncover that cash is valued less in firms with over-investment than in those with under-investment and the magnitude of over-investment is negatively related to the marginal value of cash holdings (MVCH). It reveals that investment activities impact the value that shareholders place on cash holdings. Moreover, further tests indicate that higher block holdings and the presence of independent directors on boards can effectively mitigate the negative impact of over-investment on the MVCH.

This paper enhances the understanding of the valuation implications of cash reserves held by firms with over-investment and the effectiveness of governance structures in containing the detrimental effect of investment-related agency costs on the value of holding cash.

This paper provides pioneering evidence that outside investors discount cash assets in over-investing firms to reflect their expectations that they will not receive the full benefit of these assets; and this paper extends the literature on corporate governance by assessing the role of governance mechanisms in reversing the negative relation between over-investment and the MVCH.

The purpose of this study is to analyze the extent to which under- and over-investment problems affect hotel firms’ value around the time when acquisitions are announced.

Hotel firms are classified based on their financial constraints (under-investment), corporate governance mechanisms (over-investment) and organizational structures. Multivariate analyses are conducted utilizing the panel ordinary least squares regression to examine the effects of financial constraints, corporate governance mechanisms and organizational structures on acquisition returns.

The results show that financial constraints have a larger effect on the firm value compared to the effect of corporate governance. Also, acquisitions are viewed as over-investments in poorly governed, franchising and hotel-real estate investment trust (REIT) firms.

The analyses are limited to gains from acquisitions in the hotel industry. Therefore, future studies may examine the effects of capital expenditures and cash holdings on hotel firm value.

Acquisitions could help financially constrained firms reduce informational asymmetries. Firms could expand through franchising when they are financially constrained. However, franchising firms should take restrictive actions to control managers from making acquisitions. The hotel-REIT organizational form does not seem to cause under-investment problems, and it functions as an additional corporate governance mechanism.

In addition to the C-corporation organizational structure, hotel firms extensively adopt REIT and expand through franchising, which might affect under- and over-investment problems. Nonetheless, little is known about whether capital investments create or reduce value for hotel firms. This study helps to explain how financial constraints, corporate governance mechanisms and organizational structures affect hotel firms’ value.

The study aims to examine the association between product market competition and corporate investment decisions on, particularly, risk-taking and investment efficiency. Existing theoretical studies on whether product market competition mitigates or exacerbates agency problems are inconclusive. Prior research generally finds that competition constrains management opportunism in reporting operating performance. However, the association between product market competition and managerial investment decisions has largely been unexplored.

The primary measure of product market competition is the Herfindahl–Hirschman Index. The authors use regression analysis to examine the association between corporate risk-taking and over-investment of free cash flow (FCF) (as dependent variables) and product market competition (as an independent variable).

Using firm-year observations from 1990 to 2010, the authors find that competition encourages managers to invest in risky investment. They also find that competition disciplines management on its use of FCFs. Overall, their results provide support for the disciplining role of product market competition in management investment decisions. The results are robust after they control for shareholder activism and executive compensations.

The paper contributes to the literature by providing evidence of the disciplining role of product market competition in management investment decisions. First, the results suggest that competition encourages managers to invest in risky investment. One potential explanation for the results is that competition reduces opportunities for resource diversion for management personal benefits and, in turn, decreases management risk aversion. Another explanation is that competition forces management to take more risks for the long-term survival of the company. Second, the results indicate that competition disciplines management on its use of FCFs. Although firms in highly competitive industries make investment decisions that are less conservative, they tend to avoid suboptimal investment decisions, such as over-investment of FCF, compared to their counterparts.

The purpose of this paper is to investigate the impact of corporate social responsibility (CSR) disclosure on firm-level investment efficiency.

An econometric model is used to estimate the impact of CSR reporting on investment efficiency on a sample of listed Chinese firms during the period from 2010 to 2013. Financial reporting quality is included in the model as a control variable. Investment efficiency is estimated based on existing models. Two scenarios are identified: under-investment and over-investment.

The results provide evidence of a higher level of investment efficiency for CSR reporting firms than for non-reporting firms. This relationship is, however, more pronounced in the over-investment scenario than in the under-investment scenario. In addition, the association between CSR disclosure and investment efficiency is stronger for firms with lower financial reporting quality (FRQ). These findings support the hypothesis that CSR disclosure provides effective incremental information that contributes to reduce information asymmetry and promote investment efficiency.

This is the first paper that directly tests the association between CSR disclosure and firm-level investment efficiency. The results suggest that firms and investors should consider the effect of CSR disclosure on information asymmetry and its impact on the availability and cost of capital. This work also contributes to the understanding of the economic impacts of CSR disclosure and provides arguments for regulatory entities to enforce CSR disclosure.

The purpose of this paper is to explore whether firms with powerful chief executive officers (CEOs) tend to invest (more) in corporate social responsibility (CSR) activities as the over-investment hypothesis based on classical agency theory predicts.

This paper tests an alternative hypothesis that if CSR investment is indeed an agency cost like the over-investment hypothesis suggests, then those activities may destroy firm value.

Using CEO pay slice (Bebchuk et al., 2011), CEO tenure, and CEO duality to measure CEO power, the authors show that CEO power is negatively correlated with firm’s choice to engage in CSR and with the level of CSR activities in the firm. Furthermore, the results suggest that CSR activities are in fact value enhancing in that as firms engage in more CSR activities their value increases.

The first paper to study CEO power and CSR and their impact on firm value.

The purpose of this paper is to examine the relation between financial statement comparability and corporate investment efficiency of a large sample of US firms.

The authors use a large sample of US-listed firms from 1981 to 2013. The authors use several econometric methods including ordinary least square, firms fixed effects and mediation effects regression. Sensitivity tests that include the use of alternative measures of both the dependent and independent variables provide results that are consistent with the authors’ baseline model results.

The authors find that financial statement comparability mitigates risks associated with both under-investment and over-investment. They also find that product market competition mediates the relation between financial statement comparability and investment efficiency. The authors consider this to be a function of a competitive environment, whereby firms normally disclose less private information. This in turn reduces the effect of financial statement comparability on investment efficiency. Conversely, where there are higher levels of product market competition, it is less likely that firms will under-invest. Their results are consistent with these predictions.

The authors contribute to this growing field of research by providing evidence that financial statement comparability does in fact improve firms’ investment efficiency. Findings enhance our understanding of the relation between investment efficiency and financial statement comparability which is likely to have flow-on effects in terms of financial reporting quality and firm value. This study also contributes to research that links agency theory to financial statement comparability through an analysis of moral hazard and adverse selection tenets, and how it leads to reduced levels of investment inefficiency in a firm.

This study aims to examine the effect of managerial ability on product market competition and corporate investment decisions, specifically, on risk-taking and investment efficiency.

The primary measure of managerial ability is Demerjian et al. model. In this study, Herfindahl–Hirschman Index is used to measure product market competition. Regression analysis is used to examine the association between corporate risk-taking and over-investment of free cash flow and product market competition and managerial ability.

Using firm-year observations from 2011 to 2015, the paper findings suggest that competition discourages managers to invest in risky investment. The study also found that managerial ability has no effect on the association between product market competition and investment decision.

The current study almost is the first study which is conducted on this subject; the results may give strength to further studies.

The purpose of this paper is to analyze and examine the role of accounting conservatism on firm investment behavior in China.

By combining a developed theoretical framework and empirical study, this paper examines the impacts of accounting conservatism on firm investment. The sample and data are all collected from Wind and CAMAR databases.

The paper finds that the association between accounting conservatism and capital expenditure is significantly positive when inside capital is not enough to use for investment, suggesting that conservatism can expend the level of investment by decreasing information asymmetry and cost of capital; however, the association between accounting conservatism and capital expenditure is significantly negative when inside capital is enough to use for investment, suggesting that conservatism can curtail the level of investment by mitigating the interest conflicts between management and outside shareholders and decreasing agency costs. Additionally, the paper finds that the severity of information asymmetry and agency problem affects the role of accounting conservatism on firm investment behaviour, and the association between accounting conservatism and capital expenditure is weaker for firms with ultimate ownership controller as local government or individuals.

This is the first paper to analyze and examine the impacts of accounting conservatism on firm investment in China directly. The findings are also useful to explain the awkward predicament found by prior literature.

The purpose of this study is twofold: first, to introduce two determinants of environmental, social and governance (ESG) disclosure transparency, namely, audit quality and public media exposure; and second, to investigate the impact of ESG transparency on firm-level investment efficiency.

Ordinary least square (OLS) regressions are applied to explore the relationship between the two variables of interest (audit quality and public media exposure) and ESG transparency on a sample of publicly listed Canadian firms during the period 2008 to 2017. Then, an econometric model is used to investigate the association between ESG transparency and investment efficiency under two identified scenarios, under-investment and over-investment.

Results show that audit quality and public media exposure are two main drivers of ESG transparency, hence, commitment to high-quality audits and exposure to high public media coverage drive firms to disclose more extensive and transparent ESG information. The authors also find a negative association between ESG transparency and firm-level investment inefficiency. Thus, ESG transparency generates influential incremental information that helps mitigate the information asymmetry between firms and stakeholders while fostering better resource allocation through investment efficiency.

This study contributes to the corporate social responsibility (CSR) and ESG literature by identifying audit quality and public media exposure as two determinants of ESG transparency; and by noting that higher ESG transparency has a significant economic effect on capital investment decisions through higher firm-level investment efficiency.

This study is a follow up of an earlier investigation concerning the effects of governance practices and investment strategies on public pension fund risk adjusted financial performance. Specifically, the inquiry uses three cross sectional national surveys of state and local government retirement systems to determine how governance practices in terms of system policies, board purview, and board composition impact abnormal returns. Results indicate that governance practices, particularly board purview over investment decisions, continue to have a direct negative impact on risk adjusted financial performance even after controlling for other factors.