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Strive towards investment efficiency among Egyptian companies: do board characteristics and information asymmetry matter?

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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.
Original languageEnglish
JournalInternational Journal of Finance and Economics
Early online date5 Feb 2021
DOIs
Publication statusEarly online - 5 Feb 2021

Documents

  • Strive toward investment efficiency

    Rights statement: This is the accepted version of the following article: "Strive towards investment efficiency among Egyptian companies: Do board characteristics and information asymmetry matter?", (2021), International Journal of Finance and Economics, which has been published in final form at https://onlinelibrary.wiley.com/doi/10.1002/ijfe.2540.

    Accepted author manuscript (Post-print), 1.16 MB, PDF document

    Due to publisher’s copyright restrictions, this document is not freely available to download from this website until: 5/02/23

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