Overinvestment and macroeconomic uncertainty: Evidence from renewable and non-renewable resource firms

Irawan, Denny; Okimoto, Tatsuyoshi

doi:10.1016/j.jedc.2020.103973

Cited by 15 publications

(3 citation statements)

References 41 publications

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“…Investments aim to provide the investor with a return on the outlays invested in particular projects in the future (revenue), which will compensate for the period in which the money was invested. Inflation rate and investment risk [13,14] are integral components of economic activity [15], and investments are also factors contributing to the creation of rapid economic growth [16], and simultaneously, its effects. The basic aim of investments is to increase income, production and the quality of manufactured products, improve work safety [17][18][19], introduce new technologies, diversify agricultural activity and adapt agricultural production to the requirements of environmental protection [20].…”

Section: Literature Reviewmentioning

confidence: 99%

Regional Diversity of Technical Efficiency in Agriculture as a Results of an Overinvestment: A Case Study from Poland

2021

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Ensuring adequate profitability of production, which can be ensured by optimal investments, can encourage farmers to be more caring about sustainable development. Several existing studies indicate that technical efficiency in agriculture varies regionally. Investments comprise a basic way to increase efficiency and thus reduce polarisation between regions. However, contrary to established assumptions, not every investment leads to increased efficiency, which entails a phenomenon of overinvestment. Investments should, by definition, be positively correlated with efficiency. However, existing studies indicate the existence of a significant problem of overinvestment, where increased efficiency may not occur. While for about 40% of farms in Poland the scale of investments can be assessed as optimal, more than quarter of farms exhibited absolute overinvestment and nearly one in five farms is underinvested. In response to this problem, this study aimed to identify regional differences in Poland with regard to overinvestment in farms, as well as to determine changes in farm efficiency depending on the region and level of overinvestment. The source material used in the following article consisted of unpublished Farm Accountancy Data Network (FADN) microdata derived from the DG AGRI of the European Commission. The study covered the period 2004–2015. For an original classification of farms according to their level of overinvestment the technical efficiency, using the stochastic frontier analysis approach, was used for determining regional differences that occurred as a result of overinvestment. Stochastic frontier analysis shown noticeable differences in the average technical efficiency for different overinvestment groups. As expected, underinvested farms are the least efficient (general in Poland and in all analyzed regions) and average technical efficiency did not increase. Interestingly, optimally investing farms do not have the highest technical efficiency. Higher efficiency was achieved by both relatively and absolutely overinvested farms. This is due to the fact that in order to produce efficiently in agriculture, it is necessary to at least maintain the level of tangible assets provision, and preferably to increase it as well. In terms of overinvestment levels, farm structure does not differ significantly between individual regions in Poland. However, there are differences between regions in terms of farm efficiency within each group. In all regions, only the underinvested farms did not increase their efficiency over the period under review and the highest efficiency growth rate was in regions where farms were least efficient at baseline.

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Section: Literature Reviewmentioning

confidence: 99%

Regional Diversity of Technical Efficiency in Agriculture as a Results of an Overinvestment: A Case Study from Poland

2021

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“…Wang et al (2016) provide empirical evidence of a negative relation between overinvestment and inflation uncertainty. Recently, Irawan and Okimoto (2021) investigate overinvestment under macroeconomic uncertainties using a sample of resource firms in 32 countries. They show that commodity price inflation and the business cycle of the home country influence overinvestment.…”

Section: Introductionmentioning

confidence: 99%

“…Second, we complement recent studies by focusing on the EPU effects in a country. Irawan and Okimoto (2021) provide which uncertainty influences the overinvestment of renewable and non-renewable resource firms using the global EPU index. In contrast, we provide empirical evidence of how the domestic EPU affects the overinvestment tendency of overall firms in one country.…”

Section: Introductionmentioning

confidence: 99%

Economic policy uncertainty and overinvestment: evidence from Korea

Jiang

Kim

2021

JDQS

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The authors show that there is a negative relationship between economic policy uncertainty (EPU) and firm overinvestment using Korean data from 2007 to 2016. Since Jensen (1986) shows that a firm's free cash flow is an important factor of overinvestment, the authors examine how free cash flow influences the sensitivity of overinvestment to EPU. The authors find that a high level of free cash flow attenuates the negative effect of EPU on overinvestment. The authors find that there is no significant difference in the effect of EPU on overinvestment between Chaebol (Korean family-run conglomerates) and non-Chaebol firms, which is consistent with the literature that the features of Chaebol are weakening.

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Regular development strategy model and algorithm solution of non-renewable resources

Sun

Sheng

2022

Evolving Systems

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Overinvestment and macroeconomic uncertainty: Evidence from renewable and non-renewable resource firms

Cited by 15 publications

References 41 publications

Regional Diversity of Technical Efficiency in Agriculture as a Results of an Overinvestment: A Case Study from Poland

Regional Diversity of Technical Efficiency in Agriculture as a Results of an Overinvestment: A Case Study from Poland

Economic policy uncertainty and overinvestment: evidence from Korea

Regular development strategy model and algorithm solution of non-renewable resources

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