The influence of governance on investment: Evidence from a hazard model

Does corporate governance affect the timing of large investment projects? Hazard model estimates suggest strong shareholder governance may deter managers from pursuing large investments. Controlling for investment opportunities, firms with good governance experience longer spells between large investments. However, in the presence of financial constraints or strong CEO incentives (high delta (δ)), we find no such timing differences. Finally, these higher investment hazard firms exhibit significantly negative long-run operating and stock performance. Overall, our findings are consistent with the notion that poor governance associates with overinvestment.

► We examine how corporate governance influences corporate investment.
► We find poorly governed firms undertake large investments more frequently.
► Governance only influences investment frequency for financially unconstrained firms.
► CEO incentives can substitute for governance in influencing investment frequency.
► Long-term stock returns indicate governance mitigates overinvestment.