How Investment Efficiency Affects Firms Performance?

Authors

  • ZongKe Bao Department of Accounting, Zhejiang University , China.
  • Bardia Pouresmaeil Motlagh * Department of Accounting, Ayandegan Institute of Higher Education, Tonekabon, Iran. https://orcid.org/0000-0002-3292-035X

https://doi.org/10.22105/aaa.v1i1.19

Abstract

This research aims to investigate the relationship between investment efficiency and firm performance. Multivariate linear regression was used to test the research hypothesis. The statistical population was 112 companies listed to the Tehran Stock Exchange during 2012-2021 (1120 firm-year observations). The research results showed no significant relationship between investment efficiency and firm performance. However, the additional test showed a positive relationship between underinvestment and firm performance. On the other hand, there is a negative relationship between overinvestment and firm performance.

Keywords:

Firm performance, Investment efficiency, Overinvestment, Underinvestment

References

  1. [1] Alli, K. L., Khan, A. Q., & Ramirez, G. G. (1993). Determinants of corporate dividend policy: a factorial analysis. Financial review, 28(4), 523–547. https://doi.org/10.1111/j.1540-6288.1993.tb01361.x

  2. [2] Al-Najjar, B., & Kilincarslan, E. (2019). What do we know about the dividend puzzle? – A literature survey. International journal of managerial finance, 15(2), 205–235. https://ideas.repec.org/a/eme/ijmfpp/ijmf-03-2018-0090.html

  3. [3] Modigliani, F., & Miller, M. H. (1985). The cost of capital, corporation finance and the theory of investment. The american economic review, 48(3), 261–297. http://dx.doi.org/10.1080/17446540802345448

  4. [4] Pinto, G., Rastogi, S., & Kanoujiya, J. (2022). Does ownership structure influence dividend distribution policy in India? evidence using panel data analysis. Indian journal of corporate governance, 15(2), 197–222. https://doi.org/10.1177/09746862221129342

  5. [5] Bikas, E., & Glinskytė, E. (2021). Financial factors determining the investment behavior of lithuanian business companies. Economies, 9(2). https://doi.org/10.3390/economies9020045

  6. [6] Nguyen Trong, N., & Nguyen, C. T. (2021). Firm performance: the moderation impact of debt and dividend policies on overinvestment. Journal of asian business and economic studies, 28(1), 47–63. https://doi.org/10.1108/JABES-12-2019-0128

  7. [7] Jensen, M. C. (2017). Value maximisation, stakeholder theory and the corporate objective function. Unfolding stakeholder thinking: theory, responsibility and engagement, 65–84. https://doi.org/10.2307/3857812

  8. [8] Ding, S., Knight, J., & Zhang, X. (2019). Does China overinvest? evidence from a panel of Chinese firms. European journal of finance, 25(6), 489–507. https://doi.org/10.1080/1351847X.2016.1211546

  9. [9] Grazzi, M., Jacoby, N., & Treibich, T. (2016). Dynamics of investment and firm performance: comparative evidence from manufacturing industries. Empirical economics, 51(1), 125–179. https://doi.org/10.1007/s00181-015-0991-2

  10. [10] Ribaj, A., & Mexhuani, F. (2021). The impact of savings on economic growth in a developing country (the case of Kosovo). Journal of innovation and entrepreneurship, 10(1). https://doi.org/10.1186/s13731-020-00140-6

  11. [11] Xie, P., & Huang, J. (2023). Financial expansion and economic performance: evaluating the role of research and development expenditures for China. Economic research-ekonomska istrazivanja , 36(2). https://doi.org/10.1080/1331677X.2022.2137826

  12. [12] Kashani, S. M., & Mousavi Shiri, M. (2022). The role of corporate governance in investment efficiency and financial information disclosure risk in companies listed on the Tehran stock exchange. Journal of risk and financial management, 15(12). https://doi.org/10.3390/jrfm15120577

  13. [13] Hubbard, R. G. (2001). Capital-market imperfections, investment, and the monetary transmission mechanism. Investing today for the world of tomorrow, 165–194. http://dx.doi.org/10.1007/978-3-642-56601-1_13

  14. [14] Stein, J. C. (2003). Chapter 2 Agency, information and corporate investment. Handbook of the economics of finance, 1(SUPPL. PART A), 111–165. https://doi.org/10.1016/S1574-0102(03)01006-9

  15. [15] DesJardine, M. R., Zhang, M., & Shi, W. (2023). How shareholders impact stakeholder interests: a review and map for future research. Journal of management, 49(1), 400–429. https://doi.org/10.1177/01492063221126707

  16. [16] Shemshad, A., & Imeni, M. (2022). Cash holding, firm value and performance under financial constraint: a case study of the iranian capital market. Innovation management and operational strategies, 2(4), 434–446. (In Persian). https://doi.org/10.22105/imos.2021.314356.1184

  17. [17] Biddle, G. C., Hilary, G., & Verdi, R. S. (2009). How does financial reporting quality relate to investment efficiency? Journal of accounting and economics, 48(2–3), 112–131. https://doi.org/10.1016/j.jacceco.2009.09.001

  18. [18] Chen, F., Hope, O. K., Li, Q., & Wang, X. (2011). Financial reporting quality and investment efficiency of private firms in emerging markets. Accounting review, 86(4), 1255–1288. https://doi.org/10.2308/accr-10040

  19. [19] Cutillas Gomariz, M. F., & Sánchez Ballesta, J. P. (2014). Financial reporting quality, debt maturity and investment efficiency. Journal of banking and finance, 40(1), 494–506. https://doi.org/10.1016/j.jbankfin.2013.07.013

  20. [20] Jensen, M. C. (2005). Agency cost of free cash flow, corporate finance, and takeovers. SSRN electronic journal. https://dx.doi.org/10.2139/ssrn.99580

  21. [21] Mahdavikho, V., Imeni, M., & Edalatpanah, S. A. (2022). Cash conversion cycle and current and future performance: evidence from iran’s capital market. Modern research in performance evaluation, 1(2), 80–92. https://www.journal-mrpe.ir/article_153186.html

  22. [22] Shoaib, A., & Siddiqui, M. A. (2022). Earnings management and theoretical adjustment in capital structure performance pattern: evidence from APTA economies. Borsa istanbul review, 22(1), 20–36. https://doi.org/10.1016/j.bir.2020.12.001

  23. [23] Litzenberger, R. H., & Ramaswamy, K. (1979). The effect of personal taxes and dividends on capital asset prices. theory and empirical evidence. Journal of financial economics, 7(2), 163–195.https://doi.org/10.1016/0304-405X(79)90012-6

  24. [24] Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of financial economics, 13(2), 187–221. https://doi.org/10.1016/0304-405X(84)90023-0

  25. [25] Gordon, M. J. (1963). Optimal investment and financing policy. The journal of finance, 18(2), 264–272. https://doi.org/10.1111/j.1540-6261.1963.tb00722.x

  26. [26] Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. The journal of law and economics, 26(2), 301–325.

  27. [27] Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305–360. DOI:10.1016/0304-405X(76)90026-X

  28. [28] Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of financial economics, 13(2), 187–221.

  29. [29] Shima, K. (2010). Lumpy capital adjustment and technical efficiency. Economics bulletin, 30(4), 2817–2824.

  30. [30] Farooq, S., Ahmed, S., & Saleem, K. (2014). Impact of overinvestment & underinvestment on corporate performance: evidence from Singapore stock market. SSRN electronic journal. DOI:10.2139/ssrn.2512436

  31. [31] Guariglia, A., & Yang, J. (2016). A balancing act: managing financial constraints and agency costs to minimize investment inefficiency in the Chinese market. Journal of corporate finance, 36, 111–130. DOI:10.1016/j.jcorpfin.2015.10.006

  32. [32] Yang, W. (2005). Corporate investment and value creation.

  33. [33] Richardson, S. (2006). Over-investment of free cash flow. Review of accounting studies, 11(2–3), 159–189. DOI:10.1007/s11142-006-9012-1

  34. [34] Imeni, M., Fallah, M., & Edalatpanah, S. A. (2021). The effect of managerial ability on earnings classification shifting and agency cost of Iranian listed companies. Discrete dynamics in nature and society, 5565605. DOI:10.1155/2021/5565605

  35. [35] Hall, B. H., & Lerner, J. (2010). The financing of R&D and innovation. Handbook of the economics of innovation, 1(1 C), 609–639. DOI:10.1016/S0169-7218(10)01014-2

  36. [36] Nugroho, A. C., & Stoffers, J. (2020). Market competition and agency problem: a study in Indonesian manufacturing companies. Jurnal dinamika manajemen, 11(1), 65–77. DOI:10.15294/jdm.v11i1.21684

  37. [37] Suhadak, Kurniaty, Handayani, S. R., & Rahayu, S. M. (2019). Stock return and financial performance as moderation variable in influence of good corporate governance towards corporate value. Asian journal of accounting research, 4(1), 18–34. DOI:10.1108/AJAR-07-2018-0021

  38. [38] Peress, J. (2010). Product market competition, insider trading, and stock market efficiency. Journal of finance, 65(1), 1–43. DOI:10.1111/j.1540-6261.2009.01522.x

  39. [39] Samadi Lorgani, M., & Imeni, M. (2013). The relationship between working capital management and cash holding companies listed in Tehran stock exchange. Journal of management accounting and auditing knowledge, 2(5), 39–52. https://jmaak.srbiau.ac.ir/article_7434.html

  40. [40] Imeni, M., & Edalatpanah, S. A. (2023). Resilience: business sustainability based on risk management, 199–213. DOI:10.1007/978-981-19-9909-3_9

Published

2024-03-29

How to Cite

Bao, Z. ., & Pouresmaeil Motlagh, B. (2024). How Investment Efficiency Affects Firms Performance?. Accounting and Auditing With Applications , 1(1), 17-26. https://doi.org/10.22105/aaa.v1i1.19

Similar Articles

1-10 of 13

You may also start an advanced similarity search for this article.