Abstract
Shifts from firm-level investment efficiency occur due to market imperfections and information asymmetry. This translates to increasing cost of capital which leads to over or under investments. This study identifies a failure to demonstrate the direct association between investment efficiency and financial constraints in South African firms, and fills the existing gap. The effectiveness of internal company policies and firm features as a driving force to investment efficiency, are also analyzed. We observe the firms across different industries listed on the JSE from 2009 to 2019. Using company level and year level fixed effects, the investigation shows that the South African commercial environment exhibits features of an imperfect market. In addition, the analysis reveal that financial constraints drive improved investment levels Furthermore, the findings from the study suggest that firms in this region depend mainly on external funds; specifically, on credits to invest. Consequently, only internal policies may not be sufficient to improve investment levels.
M.Com. (Financial Economics)