Abstract
Investment decisions are one of the
most important financial decisions made by firms’ managers. A wrong decision
may threaten the survival of a firm. However, due to agency problems, managers
do not always act in the best interest of the shareholders or make investments
decisions that maximize shareholders’ wealth. While existing literature has
shown that good corporate governance practices can reduce the agency problem,
it is the aim of this study to examine if corporate governance mechanisms can
increase the investment allocative efficiency and ensure that scarce funds are
transferred to investment projects that generate high returns. Based on a
sample of non-financial Canadian listed companies, this study documents an
inverse relationship between corporate governance and investment decisions. The
results confirm that rigorous corporate governance practices can prevent
managers from overinvestment
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IJBMS by IPRPD is licensed under a Creative Commons Attribution 4.0 International License.