Business & Management Studies

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