The implications of conservative management practices on investment efficiency: An empirical study on Philippine publicly listed firms

• Main Authors: De Armas, Philaine Joie O., De Vera, Hale Berry G., Mondonedo, Juan Nicollo B., Mujer, Monique Therese P.
• Format: text
• Language: English
• Published: Animo Repository 2016
• Subjects: Investments > Philippines; Management > Philippines
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/8044
• Institution: De La Salle University

Due to the expected increase in business and growth opportunities brought about by the ASEAN Integration, managers in the region are faced with more pressure to invest in projects that will maximize the benefits of the economic integration. Whether investments are deemed efficient depend on a variety of factors imposed by top management on managers of the firm such as investment horizons, cost constraints, and other intangible constraints. However, investing decisions in efficient investments may be further clouded by a certain level of prudence, or conservatism, practiced by managers in managing the firms regular course of business. Through a panel data analysis of publicly-listed firms in the Philippines over a span of 10 years, we examine the effects of conservative management practices on investment efficiency. We find that conservative management practices in Philippine firms lessen investment inefficiencies in settings where firms are more likely to underinvest, have no significant effects on investment behavior in information asymmetric situations, and temper the use of external sources of funding for future investments. In more recent times, managers in the Philippines have been exposed to an increasing number of investment opportunities domestically and abroad. Conservative management practices have been said to deter or limit inefficient firm investment undertakings, but may also contribute to inefficient firm behavior due to more prudent outlooks on expected returns, available information, and funding sources. Through panel data estimation procedures, our results show that conservative management practices in the Philippines worsen inefficiencies in investment as firms prone to underinvest tend to invest more, are not affected by situations where information is asymmetric, and temper the use of both debt and equity financing as sources of investment funding.