Overinvestment Propensity and Firm’s ValueOverinvestment Propensity and Firm’s Value
- Other Titles
- Overinvestment Propensity and Firm’s Value
- Authors
- 이기세; Seong Il JEON
- Issue Date
- Mar-2021
- Publisher
- 한국유통과학회
- Keywords
- Investment Decisions; Capital Investment; Overinvestment; Firm’s Value
- Citation
- The Journal of Asian Finance, Economics and Business, v.8, no.3, pp 49 - 59
- Pages
- 11
- Journal Title
- The Journal of Asian Finance, Economics and Business
- Volume
- 8
- Number
- 3
- Start Page
- 49
- End Page
- 59
- URI
- https://scholarworks.bwise.kr/kumoh/handle/2020.sw.kumoh/28162
- ISSN
- 2288-4637
- Abstract
- This study empirically analyzes the effect of firm overinvestment propensity on the value relevance of capital investment. In order to verify this point, this study attempts to analyze the value relevance of overinvestment firms’ capital investments. The analysis was performed according to the model of Biddle et al. (2009) and McNichols and Stubben (2008) on overinvestment propensity for analysis, and the results are as follows. First, in terms of overinvestment, corporate capital investment shows negative value relevance, so the excessive investments above reasonable levels have reduced firm’s value. In contrast, the value relevance for capital investment showed a positive value for firms whose managerial propensity changed, that is, from under-investment in the previous year, it shifted to overinvestment in the current year.
Second, as a result of analyzing the value relevance of the investment increase according to the investment propensity, the overinvestment firms showed negative values and the underinvested firms showed positive values; thus, the value relevance of the increase in investment was opposite to the investment propensity of the firm. These findings confirm that the stock market differentially evaluates investment efficiency according to investment propensity, continuity, and investment alterations, and reflects it appropriately in the firm’s value.
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