What Happens to Corporate Investment in Bad Times?
Shahram Amini, Andrew MacKinlay, Brian Rountree, James Weston
Management Science · 2026 · Volume 72 · Issue 6
Abstract
Recent studies suggest monitoring increases during economic downturns. In this study, we test whether firms’ abnormal investment activity changes across the business cycle. Focusing on recessions, we find that firms not only curtail overinvestment but also reduce underinvestment , with the combined effect representing a significant 9% of average investment. Employing various proxies for monitoring intensity, we demonstrate that stronger governance mechanisms are associated with more pronounced reductions in abnormal investment. Importantly, the influence of governance on abnormal investment is magnified during recessions relative to other periods. These results are robust to a wide array of control variables, methodologies, and potential endogeneity concerns. Our findings underscore the time-varying benefits of corporate monitoring and highlight the periods when governance mechanisms may be most effective. This paper was accepted by Bo Becker, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2024.04350 .
Keywords
recessions, overinvestment, underinvestment, shareholder monitoring, managerial entrenchment, analyst coverage shock, investor distraction
Enable JavaScript for citation tools and additional paper interactions.