Agency Costs and Efficiency of Business Capital Investment: Evidence from Quarterly Capital Expenditures
Posted: 25 Jun 2001 Last revised: 19 Nov 2016
Using the quarterly Compustat files, we present empirical findings that business capital investment is significantly higher in the fourth quarter than in other quarters. Even after controlling for business capital investment determinants, we find that the fourth quarter capital investment is significantly larger but less sensitive to investment opportunities than other quarters' capital investment. This phenomenon is more evident for firms with larger cash holdings than for firms with smaller cash holdings, for larger firms than for smaller firms, and for diversified firms than for stand-alone firms. Our findings suggest a high level of agency costs in corporate investment decisions.
Keywords: Agency cost, Capital investment efficiency, Quarterly capital expenditure
JEL Classification: G31, G32
Suggested Citation: Suggested Citation