Table A1 Definitions of variables...

Table A1

Definitions of variables

Variables	Definitions
Investment inefficiency	Is computed as the deviations or residuals from the optimal investment model. The model regresses a firm’s capital investments on Tobin’s q, sales growth, and operating cash flows (for more details, see section 5.2)
OKTA	Is the organizational capital and measured as the ratio of organizational capital to total assets (for more details see section 5.3)
OKTC	Is the organizational capital and measured as the ratio of organizational capital to total capital
Size	Is measured as the natural log of annual market capitalization
Leverage	Is measured as the ratio of total debt (short term + long term) to total capital
ROA	Represents the return on assets and is measured as the ratio earnings before interest and taxes to total assets
LOSS	Is measured as a dummy variable that takes a value of one if a firm’s income before extraordinary items is negative and zero if it is not
TOBIN’S Q	Is measured the market-to-book equity ratio
Firm age	Is calculated as the number of years since the company listed in the stock market
Slack	Is measured as the ratio of cash holdings (cash and cash equivalents) to total assets
Tangibility	Is measured as the ratio of property, plant, and equipment to total assets
CEO gender	Is measured as a dummy variable that takes one if the CEO is female and zero otherwise
CEO age	The age of the CEO in years
CEO power	Is captured by a dummy variable that takes a value of one if the CEO is also the chairman of the board of directors and zero otherwise
CEO tenure	Is measured as is the number of years a CEO has occupied the CEO position in a company
CEO external directorships	Is measured as the number of external board membership seats occupied by a CEO
Industry-level growth uncertainty	Is our preferred instrumental variable (IV). To construct our IV, we first compute the three-years of firm-level standard deviations of sales growth. Then, we calculate the industry average of the estimated firm-level standard deviations based on the 4-digits SIC code. This definition is consistent with the prior literature (e.g. Carlin et al., 2012; Francis et al., 2021), which also considers that firms in highly volatile industries tend to divest their OK investment
Information environment	Is captured by stock return synchronization, which is measured as the R² value from a regression of firm returns on market and industry returns
CEO career concerns	CEO career concerns is a dummy variable equal to one if a firm’s headquarters is located in a state that adopts the inevitable disclosure doctrine (IDD) by year t and zero otherwise. Appendix B lists the legal cases of precedent-setting adopting or rejecting the IDD
Corporate governance	The “G” governance pillar of ESG from the LSEG (formerly Refinitiv) database. Following Agnese et al. (2023) and Gyönyör and Horváth (2024), we employ this pillar to capture the firm corporate governance quality. This pillar contains three subcategories, namely, shareholders, management, and corporate social responsibility strategy, which capture the relative strength of firms in terms of board structure, board functions, shareholder rights, compensation policies, vision, and strategy

Variables	Definitions
Investment inefficiency	Is computed as the deviations or residuals from the optimal investment model. The model regresses a firm’s capital investments on Tobin’s q, sales growth, and operating cash flows (for more details, see section 5.2)
OKTA	Is the organizational capital and measured as the ratio of organizational capital to total assets (for more details see section 5.3)
OKTC	Is the organizational capital and measured as the ratio of organizational capital to total capital
Size	Is measured as the natural log of annual market capitalization
Leverage	Is measured as the ratio of total debt (short term + long term) to total capital
ROA	Represents the return on assets and is measured as the ratio earnings before interest and taxes to total assets
LOSS	Is measured as a dummy variable that takes a value of one if a firm’s income before extraordinary items is negative and zero if it is not
TOBIN’S Q	Is measured the market-to-book equity ratio
Firm age	Is calculated as the number of years since the company listed in the stock market
Slack	Is measured as the ratio of cash holdings (cash and cash equivalents) to total assets
Tangibility	Is measured as the ratio of property, plant, and equipment to total assets
CEO gender	Is measured as a dummy variable that takes one if the CEO is female and zero otherwise
CEO age	The age of the CEO in years
CEO power	Is captured by a dummy variable that takes a value of one if the CEO is also the chairman of the board of directors and zero otherwise
CEO tenure	Is measured as is the number of years a CEO has occupied the CEO position in a company
CEO external directorships	Is measured as the number of external board membership seats occupied by a CEO
Industry-level growth uncertainty	Is our preferred instrumental variable (IV). To construct our IV, we first compute the three-years of firm-level standard deviations of sales growth. Then, we calculate the industry average of the estimated firm-level standard deviations based on the 4-digits SIC code. This definition is consistent with the prior literature (e.g. Carlin et al., 2012; Francis et al., 2021), which also considers that firms in highly volatile industries tend to divest their OK investment
Information environment	Is captured by stock return synchronization, which is measured as the R² value from a regression of firm returns on market and industry returns
CEO career concerns	CEO career concerns is a dummy variable equal to one if a firm’s headquarters is located in a state that adopts the inevitable disclosure doctrine (IDD) by year t and zero otherwise. Appendix B lists the legal cases of precedent-setting adopting or rejecting the IDD
Corporate governance	The “G” governance pillar of ESG from the LSEG (formerly Refinitiv) database. Following Agnese et al. (2023) and Gyönyör and Horváth (2024), we employ this pillar to capture the firm corporate governance quality. This pillar contains three subcategories, namely, shareholders, management, and corporate social responsibility strategy, which capture the relative strength of firms in terms of board structure, board functions, shareholder rights, compensation policies, vision, and strategy

Note(s): The table defines the variables used in this study

Source(s): Authors’ own work

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