Table 4

Overinvestment and underinvestment

VariablesOverinvestment (1)Underinvestment (2)Overinvestment (3)Underinvestment (4)
Intercept0.017**−0.018***0.020**−0.016***
(0.008)(0.005)(0.008)(0.005)
OKTA0.021***−0.007***  
(0.005)(0.002)  
OKTC  0.007***−0.003***
  (0.002)(0.001)
Control variablesYesYesYesYes
Firm FEYesYesYesYes
Year FEYesYesYesYes
R2 (%)72.5578.4071.6278.32
F-statistics (Wald)5.1846.245.0446.50
p-value(0.000)(0.000)(0.000)(0.000)
Observations1,9142,8961,9142,890

Note(s): The table presents the results of regressions that examine how OK impacts the direction of deviations from efficient investment (investment inefficiency). The sample period is divided into two subsamples, Overinvestment and Underinvestment, based on positive (overinvestment) or negative residuals (underinvestment) from the investment model. OKTA is the ratio of OK to total assets. OKTC is the ratio of OK to total capital. The investment inefficiency is the deviation from the optimal investment and is computed as the residuals from the investment model. Control variables include size, ROA, slack, tangibility, firm age, leverage, Tobin’s Q, and Loss. All variables are as defined in the  Appendix 1. Figures in parentheses are standard errors that are clustered at the firm level for heteroscedasticity. (***) (**) (*) significance at the (1%) (5%) (10%) levels

Source(s): Authors’ own work

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