Inefficient Investment and Corporate Sustainable Growth

Abstract

The inefficient investment behavior exists widely in enterprises, and few literatures expand its economic consequences to the perspective of sustainable growth of enterprises. This paper selects eligible Chinese A-share private listed companies in Shanghai and Shenzhen exchanges from 2014 to 2018 as the sample to explore whether the inefficient investment has an impact on the firm sustainable growth ability, and whether the inefficient investment under different conditions have different impacts on the sustainable growth ability of enterprises. The empirical results show that the inefficient investment behaviors of private enterprises reduce the sustainable growth ability of enterprises. Whether it is the over-investment or the under-investment, it may inhibit the corporate sustainable growth. The under-investment has more effect on the corporate sustainable growth than the over-investment. The number of under-investment enterprises is more than over-investment enterprises. According to the different formation mechanisms of under-investment, the under-investment on the condition of sufficient funds has a negative impact on the sustainable growth of the enterprise, which is the performance of ultra-conservation. The under-investment on the condition of insufficient funds has also a significantly negative impact on the corporate sustainable growth to avoid risks. Our evidences are consistent with the hypotheses and have important policy implications.

Keywords: Inefficient investment, Over-investment, Under-investment, Corporate sustainable growth

DOI: 10.7176/EJBM/13-24-02

Publication date: December 31^st 2021