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The impact of the digital and green transitions on investment inefficiency

Author

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  • Cimini, Francesco
  • Kalantzis, Fotios

Abstract

This study examines the impact of green and digital investments on the investment inefficiency level of European firms. We define investment inefficiency as the deviation from the optimal investment level, which depends on both the net present value (NPV) of the projects and the marginal benefit and cost of investment. Leveraging matched data from the European Investment Survey (EIBIS) and ORBIS, which results in a sample of 4,892 firmyear observations from 27 European countries surveyed over the period 2021-2023, we employed a panel data regression model to estimate the effect of green and digital investments on investment inefficiency. Our analysis shows that both types of investments reduce investment inefficiency, particularly for under-investing firms. We also find evidence of a statistically significant interaction effect between green and digital investments for over-investing firms, suggesting that digital technologies can enhance the efficiency gains from green investments. Our results have important implications for policy makers and business managers who aim to foster the twin digital and green transition in Europe and improve their investment efficiency and competitiveness.

Suggested Citation

  • Cimini, Francesco & Kalantzis, Fotios, 2024. "The impact of the digital and green transitions on investment inefficiency," EIB Working Papers 2024/04, European Investment Bank (EIB).
    • Handle: RePEc:zbw:eibwps:304395
    DOI: 10.2867/1050208
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    More about this item

    Keywords

    European Investment Bank Investment Survey; Investment Inefficiency; Green investment; Digital investment; Twin transition;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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