Abnormal Investment and Firm Performance

Siqi Liu, Chao Yin, Yeqin Zeng

Research output: Contribution to journalArticlepeer-review


We find a negative relation between abnormal investment and future stock performance. Such a negative relation is mainly driven by under-investment, not over-investment. Our results are robust to various estimation methods and investment models. Both delayed market reaction and agency issues may lead to the apparently anomalous return predictability of under-investment. First, market investors may not react promptly to the fundamental information contained in under-investment about a firm's future profitability, asset growth, and financial distress probability. Second, the negative relation between under-investment and future stock returns is more pronounced for firms with lower investor monitoring and higher agency costs.
Original languageEnglish
Article number101886
JournalInternational Review of Financial Analysis
Early online date13 Sep 2021
Publication statusPublished - Nov 2021


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