Strategic deviation and investment inefficiency

Dinithi Ranasinghe and Ahsan Habib
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Dinithi Ranasinghe: Department of Accountancy and Finance, University of Otago, Dunedin, New Zealand
Ahsan Habib: School of Accountancy, Massey University, Auckland, New Zealand

Australian Journal of Management, 2024, vol. 49, issue 4, 531-560

Abstract: We examine the association between strategic deviation and investment inefficiency. We conceptualize strategic deviation as the extent to which the pattern of a firm’s resource allocation deviates from its industry peers. We posit that firms pursuing deviant strategies are prone to increased information asymmetry and hence, are able to engage in self-serving behaviour as manifested in inefficient investments. Our results suggest that deviant firms have sub-optimal investments. A battery of robustness tests validates our findings. We further provide evidence to suggest that weaker monitoring, high product market competition and a low-quality information environment moderate the relation between strategic deviation and investment inefficiency. JEL Classification: M41, G41

Keywords: Information asymmetry; investments; product market competition; strategic deviation (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:49:y:2024:i:4:p:531-560

DOI: 10.1177/03128962231152764

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