The Impact of Agency Costs on Investment Efficiency: Evidence from Overinvestment and Underinvestment in Borsa İstanbul
DOI:
https://doi.org/10.37241/jatss.2026.156Keywords:
Financial management, investment efficiency, agency costAbstract
Introduction: Agency costs can reduce resource allocation efficiency by distorting firms' investment decisions through conflicts of interest among managers, shareholders, and lenders. Therefore, examining the impact of agency costs on investment efficiency is a significant research area in the corporate finance literature. This study aims to analyze the impact of agency costs on firms' investment efficiency.
Method: To determine the direction of investment inefficiency, overinvestment and underinvestment behaviors are examined through separate models. The study uses quarterly data from 24 firms listed on the BIST Industrial Index for the period 2015-2023. Investment efficiency was measured using the absolute value of residuals obtained from the expected investment model, in accordance with the approach of Biddle et al. (2009). Overinvestment and underinvestment were calculated using the positive and negative components of the residuals.
Results or Findings: The study findings reveal that agency costs significantly affect investment efficiency, and this effect differs depending on the direction of investment divergence.
Discussion or Conclusion: The results reval that agency costs not only increase overall investment inefficiency but can also influence both overinvestment and underinvestment behaviors of firms. These findings demonstrate that effective corporate governance mechanisms are crucial for optimizing investment decisions.
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