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Strategic deviation and investment inefficiency

Author

Listed:
  • Dinithi Ranasinghe

    (Department of Accountancy and Finance, University of Otago, Dunedin, New Zealand)

  • Ahsan Habib

    (School of Accountancy, Massey University, Auckland, New Zealand)

Abstract

We examine the association between strategic deviation and investment inefficiency. We conceptualize strategic deviation as the extent to which the pattern of a firm’s resource allocation deviates from its industry peers. We posit that firms pursuing deviant strategies are prone to increased information asymmetry and hence, are able to engage in self-serving behaviour as manifested in inefficient investments. Our results suggest that deviant firms have sub-optimal investments. A battery of robustness tests validates our findings. We further provide evidence to suggest that weaker monitoring, high product market competition and a low-quality information environment moderate the relation between strategic deviation and investment inefficiency. JEL Classification: M41, G41

Suggested Citation

  • Dinithi Ranasinghe & Ahsan Habib, 2024. "Strategic deviation and investment inefficiency," Australian Journal of Management, Australian School of Business, vol. 49(4), pages 531-560, November.
    • Handle: RePEc:sae:ausman:v:49:y:2024:i:4:p:531-560
    DOI: 10.1177/03128962231152764
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    More about this item

    Keywords

    Information asymmetry; investments; product market competition; strategic deviation;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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