Economics at your fingertips  

The Heterogeneous Effects of Corporate Governance on the Investment-Cash Flow Sensitivity -- Over- or Under-Investment Depending on Net Debt Status --

Jun-Ichi Nakamura

Economic Review, 2014, vol. 65, issue 3, 250-264

Abstract: Using a large sample of the Japanese listed firms in the latter half of the 2000s, we investigate the heterogeneous effects of corporate governance on investment cash-flow sensitivity. We estimate a log-linear q-type investment equation incorporating cash flow effects, splitting the sample by net debt status and find the following: 1) The succession of managerial power has a significantly positive effect on the investment-cash flow sensitivity which may lead to overinvestment, 2) The magnitude of the effect is basically larger with the lower value of net debt status, 3) However, the effect disappears and instead the amount of gross debt comes to have a significantly negative effect on investment when the level of net debt is negative but not far from zero. In the last case, the strong motivation to keep the status of negative net debt, which arises from the same agency problem as the first two cases, may lead to underinvestment.

JEL-codes: D22 G31 (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.15057/27357

Access Statistics for this article

More articles in Economic Review from Hitotsubashi University Contact information at EDIRC.
Bibliographic data for series maintained by Digital Resources Section, Hitotsubashi University Library ().

Page updated 2020-10-13
Handle: RePEc:hit:ecorev:v:65:y:2014:i:3:p:250-264