Corporate Governance, Institutional Environment, Behavioral Corporate Finance and Inefficient Investment

Abstract

This paper is the literature review of extensive literature about how inefficient investment is influenced. It discusses in three factors: corporate governance, institutional environment and behavioral corporate finance. Academics concern how the conflicts of shareholders and creditors, shareholders and managers, controlling shareholders and minority shareholders cause inefficient investment through the game. However, an enterprise is not isolated, it operates in various connections with external institutional environment. Academics interest in how formal institution such as legal environment, financial system, government intervention and informal institution like political connection impact inefficient investment. Besides, human behaviors have certain social and individual psychology background, then the crossover study of corporate finance and psychology gradually becomes a cutting-edge issue. The paper concludes the effects of investor psychology on inefficient investment by classifying psychological bias derived from investment decisions, investment execution and investment performance feedback.