Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/271244 
Authors: 
Year of Publication: 
2020
Series/Report no.: 
QMS Research Paper No. 2020/13
Publisher: 
Queen's University Belfast, Queen's Management School, Belfast
Abstract: 
Agency problems in firms are known to influence suboptimal capital investment decisions. Using panel data of publicly listed firms in India, we find evidence that increased insider ownership is associated with lower investment efficiency, i.e. as insider ownership increases, firms show tendency to make capital investments beyond the optimal level. However, we do not find evidence of increased insider ownership leading to underinvestment (below the optimal level of capital investment). A plausible explanation, consistent with theory, is that such insiders are making capital investments for private gain and empire-building rather than in the best interest of the firm. Additional analyses show that the presence of independent directors on the board of firms mitigates such value-destroying investments stemming from increased insider ownership.
Subjects: 
Investment efficiency
Tobin's Q
insider ownership
suboptimal investment
overinvestment
JEL: 
G31
G32
G34
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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