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Effects of financial flexibility value and accounting conservatism on investment: evidence from mispricing

Author

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  • Chao Chin-Fang

    (Ling Tung University)

  • Yi-Mien Lin

    (National Chung Hsing University)

  • Teng-Shih Wang

    (Providence University)

Abstract

This research examines how the interactive effects of financial flexibility value and accounting conservatism influence corporate investment decisions and further explores the moderating effect of a firm’s mispricing on the above relationship. The findings show that firms with high financial flexibility and conservatism in the prior period are less likely to over-invest in the current period, because managers tend to make conservative decisions. Moreover, equity financing results in over-investment among overpriced firms, which is robust after considering a firm’s hedging factor and high agency costs.

Suggested Citation

  • Chao Chin-Fang & Yi-Mien Lin & Teng-Shih Wang, 2023. "Effects of financial flexibility value and accounting conservatism on investment: evidence from mispricing," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 47(3), pages 690-706, September.
    • Handle: RePEc:spr:jecfin:v:47:y:2023:i:3:d:10.1007_s12197-023-09625-y
    DOI: 10.1007/s12197-023-09625-y
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