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Managerial ability, internal control and investment efficiency

Author

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  • Chen, Suyun
  • Li, Zongze
  • Han, Binbin
  • Ma, Hengyun

Abstract

This paper discusses the relationship between managerial ability]and inefficient investment, as well as the impacts of internal control on them by using information asymmetry and agency theory based on data of Shanghai and Shenzhen A-share listed companies over 2012–2016. (i) Managerial ability alleviates the under-investment caused by information asymmetry but aggravates the over-investment caused by agency problem; (ii) Internal control restrains the relationship between managerial ability and over-investment but promotes the relationship between managerial ability and under-investment. (iii) There is a significant positive correlation between managerial ability and over-investment and internal control has a significant suppressed effect for state-owned firms. (iv) There is a significant negative correlation between managerial ability and under-investment and internal control has a significant promote effect for private-owned firms. (v) Where the firm’s chairman and the general manager are the same person, internal control has little effect on the relationship of managerial ability and over-investment. This study contributes to establish comprehensive analysis framework of inefficient investment and has some implications for corporate investment decision-making behavior.

Suggested Citation

  • Chen, Suyun & Li, Zongze & Han, Binbin & Ma, Hengyun, 2021. "Managerial ability, internal control and investment efficiency," Journal of Behavioral and Experimental Finance, Elsevier, vol. 31(C).
    • Handle: RePEc:eee:beexfi:v:31:y:2021:i:c:s2214635021000678
    DOI: 10.1016/j.jbef.2021.100523
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    Cited by:

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    2. Ningrui Wen & Muhammad Usman & Ahsan Akbar, 2023. "The Nexus between Managerial Overconfidence, Corporate Innovation, and Institutional Effectiveness," Sustainability, MDPI, vol. 15(8), pages 1-21, April.
    3. Khoo, Joye & (Wai Kong) Cheung, Adrian, 2022. "Managerial ability and debt maturity," Journal of Contemporary Accounting and Economics, Elsevier, vol. 18(1).
    4. Karami, Gholamreza & Mehrani, Sasan & Beik Boshrouyeh, Salman & Ezadpour, Mostafa & Mohebbi, Masoud & Samavat, Milad, 2024. "Political connections and labor investment efficiency," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 568-580.
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    6. Qian, Kun & Liang, Xinyv & Liu, Xiaofeng, 2023. "Managerial ability, managerial risk taking and innovation performance," Finance Research Letters, Elsevier, vol. 57(C).
    7. Chowdhury, Hasibul & Hossain, Ashrafee & Tan, Kelvin & Zheng, Jiayi, 2022. "Do external labor market incentives improve labor investment efficiency?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 34(C).

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    More about this item

    Keywords

    Managerial ability; Information asymmetry; Agency theory; Internal control; Inefficient investment;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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