TY - JOUR

T1 - Strive towards investment efficiency among Egyptian companies: Do board characteristics and information asymmetry matter?

AU - Menshawy, Ibrahim

AU - Basiruddin, Rohaida

AU - Zamil, Nor

AU - Hussainey, Khaled

PY - 2023/7/5

Y1 - 2023/7/5

N2 - This study examines the impact of the board of directors (BoD) characteristics, namely BoD independence, compensation, leadership, and CEO career concerns on investment efficiency, using information asymmetry as a mediator. Using a sample of 326 firm-year observations of non-financial firms listed in the EGX 100 Index of the Egyptian stock market from 2014 to 2018, we find that board independence, board compensation, and board leadership are negatively associated with inefficient investment and information asymmetry, whereas the opposite is true for CEO career concerns. Furthermore, a positive relationship between information asymmetry and inefficient investment is documented. Finally, we find that information asymmetry mediates the relationship between the three BoD characteristics (i.e., board independence, leadership, and compensation) and inefficient investment. Conversely, it does not interfere with the relationship between CEO career concerns and inefficient investment. These findings are consistent in both under-investment and over-investment scenarios and across the pooled sample. Our findings contribute to corporate governance and investment literature by addressing new relationships, providing empirical evidence from a one-tier board model in developing countries, and offering a useful explanation for the inconsistent results in prior studies. These findings help regulators, investors, and policymakers realize the importance of BoD characteristics in mitigating information asymmetry and improving corporate investment efficiency.

AB - This study examines the impact of the board of directors (BoD) characteristics, namely BoD independence, compensation, leadership, and CEO career concerns on investment efficiency, using information asymmetry as a mediator. Using a sample of 326 firm-year observations of non-financial firms listed in the EGX 100 Index of the Egyptian stock market from 2014 to 2018, we find that board independence, board compensation, and board leadership are negatively associated with inefficient investment and information asymmetry, whereas the opposite is true for CEO career concerns. Furthermore, a positive relationship between information asymmetry and inefficient investment is documented. Finally, we find that information asymmetry mediates the relationship between the three BoD characteristics (i.e., board independence, leadership, and compensation) and inefficient investment. Conversely, it does not interfere with the relationship between CEO career concerns and inefficient investment. These findings are consistent in both under-investment and over-investment scenarios and across the pooled sample. Our findings contribute to corporate governance and investment literature by addressing new relationships, providing empirical evidence from a one-tier board model in developing countries, and offering a useful explanation for the inconsistent results in prior studies. These findings help regulators, investors, and policymakers realize the importance of BoD characteristics in mitigating information asymmetry and improving corporate investment efficiency.

U2 - 10.1002/ijfe.2540

DO - 10.1002/ijfe.2540

M3 - Article

JO - International Journal of Finance and Economics

JF - International Journal of Finance and Economics

SN - 1099-1158

ER -