The Influence of Governance on Investment: Evidence from a Hazard Model

62 Pages Posted: 20 Aug 2009 Last revised: 12 May 2014

See all articles by Matthew T. Billett

Matthew T. Billett

Indiana University - Kelley School of Business - Department of Finance

Jon A. Garfinkel

University of Iowa - Tippie College of Business

Yi Jiang

California State University, Fullerton

Date Written: November 18, 2010

Abstract

Does corporate governance affect the timing of large investment projects? Hazard model estimates suggest strong shareholder governance may deter managers from pursuing large investments. Controlling for investment opportunities, firms with good governance experience longer spells between large investments. However, in the presence of financial constraints or strong CEO incentives (high delta (δ)) we find no such timing differences. Finally, these higher investment hazard firms exhibit significantly negative long-run operating and stock performance. Overall, our findings are consistent with the notion that poor governance associates with over-investment.

Keywords: Corporate Governance, Investment Spike, Hazard Model

JEL Classification: G32, G34, J33

Suggested Citation

Billett, Matthew T. and Garfinkel, Jon A. and Jiang, Yi, The Influence of Governance on Investment: Evidence from a Hazard Model (November 18, 2010). Journal of Financial Economics (JFE), Vol. 102, No. 3, 2011. Available at SSRN: https://ssrn.com/abstract=1458525 or http://dx.doi.org/10.2139/ssrn.1458525

Matthew T. Billett

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3366 (Phone)

Jon A. Garfinkel (Contact Author)

University of Iowa - Tippie College of Business ( email )

108 PBB
Iowa City, IA 52242-1000
United States
319-335-0943 (Phone)
319-335-3690 (Fax)

HOME PAGE: http://www.biz.uiowa.edu/faculty/jgarfinkel

Yi Jiang

California State University, Fullerton ( email )

P.O. Box 6848
Fullerton, CA CA 92834-6848
United States
657-278-4363 (Phone)
657-278-2161 (Fax)

HOME PAGE: http://business.fullerton.edu/finance/yjiang/

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