article · International Journal of Finance & Economics
An analysis of 326 firm-year observations from non-financial companies listed on the Egyptian stock market between 2014 and 2018 evaluates how board features influence corporate investment efficiency. The investigation assesses board independence, compensation, leadership structure, and chief executive career concerns, examining information asymmetry as an intermediary factor. Results indicate that higher board independence, appropriate compensation, and sound leadership reduce information asymmetry and curb inefficient investment. In contrast, chief executive career concerns increase both information asymmetry and investment inefficiency. Furthermore, information asymmetry directly links to inefficient investment and acts as a mediator for the influence of board independence, compensation, and leadership. These outcomes hold across scenarios of under-investment and over-investment, highlighting governance dynamics within a single-tier board structure in a developing market.
Inefficient capital allocation can undermine corporate performance and broader economic growth. By showing how specific board attributes reduce information gaps between managers and stakeholders, this research provides actionable guidance for policymakers, regulators, and investors seeking to refine corporate governance frameworks, improve transparency, and support optimal corporate decision-making in emerging markets.
The findings provide empirical guidance for corporate regulators, institutional investors, and governance advisory services rather than a commercial product. These stakeholders can apply the evidence immediately to benchmark board oversight, refine director remuneration, and update listing requirements to reduce wasteful capital expenditure. The insights are directly applicable to governance policy and corporate advisory practices.
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Abstract 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.
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DOI: 10.1002/ijfe.2540
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