IDEAS home Printed from https://ideas.repec.org/a/sae/emffin/v22y2023i3p272-296.html
   My bibliography  Save this article

The Effect of Investment Inefficiency on Expected Returns

Author

Listed:
  • Jains P. Chacko
  • Lakshmi Padmakumari

Abstract

The majority of Indian firms have a promoter and family-owner-dominated ownership structure; therefore, the agency problem prevailing in such a setting would be the conflict of interest between the majority and minority shareholders. This motivated us to examine the adverse effect of not investing at the level implied by the firms’ characteristics, termed investment inefficiency, on the ex-ante measure of expected returns, the implied cost of capital. Our study finds a positive relationship between investment inefficiency and expected returns in the baseline results estimated using pooled ordinary least squares (OLS) and the robustness results estimated using a two-step generalized method of moments (GMM). The sample of the study consists of listed firms in India from 2016 to 2021. JEL Codes: G11, G31

Suggested Citation

  • Jains P. Chacko & Lakshmi Padmakumari, 2023. "The Effect of Investment Inefficiency on Expected Returns," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 22(3), pages 272-296, September.
    • Handle: RePEc:sae:emffin:v:22:y:2023:i:3:p:272-296
    DOI: 10.1177/09726527231165365
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/09726527231165365
    Download Restriction: no
    File URL: https://libkey.io/10.1177/09726527231165365?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Keywords

    Corporate investment; agency cost; financial constraints; ex ante cost of capital; implied cost of equity capital;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:emffin:v:22:y:2023:i:3:p:272-296. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.ifmr.ac.in .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.