Real Investment, Economic Efficiency and Managerial Entrenchment

32 Pages Posted: 1 Dec 2009 Last revised: 12 Jun 2011

See all articles by Øyvind Bøhren

Øyvind Bøhren

BI Norwegian Business School; European Corporate Governance Institute (ECGI)

Ilan Cooper

BI Norwegian Business School

Richard Priestley

Norwegian Business School

Date Written: November 10, 2009

Abstract

We uncover a positive relationship between firms' corporate governance quality, as measured by the degree of managerial entrenchment, and the quality of their real investment decisions. Firms whose managers are less entrenched invest more, invest more in line with their investment opportunities and have higher productivity of capital and labor. Rather than reducing overinvestment, our evidence suggests that good governance primarily mitigates underinvestment. These results are robust to alternative measures of investment opportunities and are not driven by product market competition or potential endogeneity between governance quality and investment opportunities.

Suggested Citation

Bøhren, Øyvind and Cooper, Ilan and Priestley, Richard, Real Investment, Economic Efficiency and Managerial Entrenchment (November 10, 2009). Available at SSRN: https://ssrn.com/abstract=1302524 or http://dx.doi.org/10.2139/ssrn.1302524

Øyvind Bøhren

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway
46410503 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Ilan Cooper (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Richard Priestley

Norwegian Business School ( email )

Nydalsveien
37
N-0442 Oslo, 0283
Norway
47 46410515 (Phone)

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