Performance Shortfall And Firms'Overinvestment

The efficiency of a firm's capital investment is closely related to the value of the firm,but overinvestment as an inefficient investment behavior of the firm is still confirmed to be ubiquitous.Therefore,to further explain the overinvestment behavior of firms and understand the factors that influence' overinvestment,this paper introduces the perspective of Behavioral Theory of the Firm(BTF)to discuss the relationship between performance shortfall and firm's overinvestment.In this paper,it is proposed that when firms encounter performance shortfall,managers will enhance the level of risk preference due to the perceived sense of threat and loss,which will lead to an increase in the degree of overinvestment.To prove this point,this paper reviews the previous literature about overinvestment,summarizes the performance feedback mechanism proposed by BTF,and proposes one main effect hypothesis and four moderating effect hypotheses following the logic of BTF.In the empirical part,this paper selects 1990A-share listed companies from 2011 to 2017 as research samples and conducts two robustness tests after regression analysis to ensure the reliability of the results.In the end,five conclusions are drawn:(1)The greater the degree of performance shortfall,the more intensive firms' overinvestment will be.(2)The proportion of female executives will significantly alleviate the positive effect performance shortfall brings to the degree of firms' overinvestment.(3)The average age of the executive team will significantly intensify the positive effect performance shortfall brings to the degree of firms' overinvestment.(4)The shareholding ratio of institutional investors will significantly alleviate the positive effect performance shortfall brings to the degree of firms'overinvestment.(5)The proportion of independent directors has no significant effect on the positive relationship between performance shortfall and the degree of firms'overinvestment.This paper enriches the empirical research on the impact of situational factors on firm's overinvestment from the perspective of BTF and complements the research on the bounded rational nature of performance feedback mechanism in BTF.At the same time,this paper also provides new empirical evidence for the research fields of the characteristics of executives and corporate governance.In practice,firm's managers can refer to this article,consciously pay attention to the irrational response under the situational factors of performance shortfall,and improve the capital investment efficiency of the firm.Shareholders can also consider introducing more institutional investors or increasing the proportion of female executives in firm's top management team to alleviate the intensified overinvestment that appears under the performance shortfall.