Corporate Governance and the Determinants of Investment

We use investment-cash flow regressions to show that both asymmetric-information and agency problems are more severe in Continental Europe than in the Anglo-Saxon countries leading to too little investment by firms with attractive investment opportunities and too much by those with poor investment o...

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Bibliographic Details
Published in:Journal of institutional and theoretical economics 2007-12, Vol.163 (4), p.598-626
Main Authors: Gugler, Klaus, Mueller, Dennis C., Yurtoglu, B. Burcin
Format: Article
Language:English
Subjects:
Business economics
Business investment
Business structures
Capital costs
Capital investments
Cash flow
Coefficients
Corporate governance
Financial investments
Firm theory
Investment
Investment decision
Investment management companies
Investment strategies
Regression analysis
Shareholders
Studies
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Summary:We use investment-cash flow regressions to show that both asymmetric-information and agency problems are more severe in Continental Europe than in the Anglo-Saxon countries leading to too little investment by firms with attractive investment opportunities and too much by those with poor investment opportunities. Legal systems, accounting standards, and ownership structure systematically affect the investment-cash flow sensitivity. Cash flow coefficients are largest for family-controlled firms in Europe.
ISSN:0932-4569
1614-0559
DOI:10.1628/093245607783242945