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
JournalInternational Review of Financial Analysis
Publication statusAccepted - 01 Sep 2021


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