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How does credit market distortion affect corporate investment efficiency? The role of managerial forecast

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  • Wang, Yizhong
  • Chen, Lifang
  • Huang, Ying Sophie
  • Li, Yong

Abstract

The purpose of this paper is to study the interaction among corporate investment efficiency, credit supply distortion and managerial forecast ability in China. We provide robust evidence that credit distortion adversely affects corporate investment efficiency, while better managerial forecast ability mitigates this negative effect. Subsample analyses show that managerial forecast ability mitigates the adverse effect of credit supply distortion for non-state-owned enterprises but not for state-owned enterprises. We also find evidence that negative credit supply distortions have a greater impact on corporate investment efficiency and managerial forecast ability is particularly important in reducing underinvestment.

Suggested Citation

  • Wang, Yizhong & Chen, Lifang & Huang, Ying Sophie & Li, Yong, 2018. "How does credit market distortion affect corporate investment efficiency? The role of managerial forecast," Finance Research Letters, Elsevier, vol. 25(C), pages 266-273.
    • Handle: RePEc:eee:finlet:v:25:y:2018:i:c:p:266-273
    DOI: 10.1016/j.frl.2017.11.004
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    More about this item

    Keywords

    Investment efficiency; Credit distortion; Managerial forecast ability;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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