Abnormal Investment and Firm Performance

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

doi:10.1016/j.irfa.2021.101886

Abnormal Investment and Firm Performance

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

Authors

S. Liu

C. Yin

Dr Yeqin Zeng yeqin.zeng@durham.ac.uk
Associate Professor

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
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

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Publisher Licence URL
http://creativecommons.org/licenses/by-nc-nd/4.0/

Copyright Statement
© 2021 This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/