Abnormal Investment and Firm Performance

Liu, S.; Yin, C.; Zeng, Y.

Abstract

We find a negative relation between abnormal investment and future stock performance. Such a negative relation is mainly driven by under-investment, not overinvestment. Our results are robust to various estimation methods and investment models. Both delayed market reaction and agency issues may lead to the apparently anomalous return predictability of under-investment. First, market investors may not react promptly to the fundamental information contained in under-investment about a firm’s future profitability, asset growth, and financial distress probability. Second, the negative relation between under-investment and future stock returns is more pronounced for firms with lower investor monitoring and higher agency costs.

Citation

Liu, S., Yin, C., & Zeng, Y. (2021). Abnormal Investment and Firm Performance. International Review of Financial Analysis, 78, Article 101886. https://doi.org/10.1016/j.irfa.2021.101886

• Journal Article Type: Article
• Acceptance Date: Sep 1, 2021
• Online Publication Date: Sep 9, 2021
• Publication Date: 2021-11
• Deposit Date: Sep 7, 2021
• Publicly Available Date: Sep 10, 2023
• Journal: International Review of Financial Analysis
• Print ISSN: 1057-5219
• Electronic ISSN: 1873-8079
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 78
• Article Number: 101886
• DOI: https://doi.org/10.1016/j.irfa.2021.101886
• Public URL: https://durham-repository.worktribe.com/output/1242194