An Empirical Insight into Investment and Impact of Corporate Governance on Under-Investment and Over-Investment Phenomenon of Pakistan manufacturing Firms

Abstract

In the developing countries such as Pakistan corporate governance is still considered as an emerging idea. Our research focuses on the impact of corporate governance on firms' overinvestment and underinvestment decisions. For this we have taken a sample of 29 firms from years 2011-2013. This data has been extracted from sector leaders listed in Karachi stock exchange and also from the annual reports of these firms. The empirical investigation was conducted through investment equation, descriptive statistics and also by Hausman test to check the validity of hypothesis. This study reveals that corporate governance has a negative yet insignificant impact on over and under investment. The negative sign indicates that corporate governance indeed does control firms' under and over investment decisions. However, we believe that this insignificance is because the quality of corporate governance is not as fulfilling as we expected it to be.