Investment Theory and Corporate Investment Decisions: A Theoretical and Empirical Review
DOI:
https://doi.org/10.24256/kharaj.v8i1.8967Keywords:
investment theory, corporate finance, capital budgeting, behavioral finance, firm valueAbstract
This study examines the role of investment theory in shaping corporate investment decisions amidst increasingly complex and dynamic economic conditions. The research focuses on how various investment theory approaches influence corporate investment decision-making and their impact on firm value and market efficiency. This study is conducted through a systematic literature review of classical and contemporary investment theories, including Modern Portfolio Theory, the Capital Asset Pricing Model, and behavioral finance approaches. Furthermore, this study examines empirical evidence and the implementation of these theories in corporate practice, particularly in aspects of capital budgeting, dividend policy, and investment behavior. A cross-sector case study analysis demonstrates that the contextual application of investment theory contributes to improved corporate performance. The research findings emphasize the importance of integrating theoretical frameworks and practical strategies by managers, investors, and policymakers to encourage corporate value creation and improve market efficiency, while also opening up opportunities for further research development.
References
Aharoni, Y. (2015). The foreign investment decision process. In International business strategy (pp. 10-20). Routledge.
Ahmad, M., & Shah, SZA (2022). Bias driven by overconfidence heuristic in investment decision making and performance: mediating the effect of risk perception and moderating the effect of financial literacy. Journal of Economics and Administrative Sciences, 38(1), 60-90.
Areiqat, AY, Abu-Rumman, A., Al-Alani, YS, & Alhorani, A. (2019). The impact of behavioral finance on stock investment decisions: an applied study on a sample of investors in the Amman Stock Exchange. Journal of the Academy of Accounting and Financial Studies, 23(2), 1-17.
Asker, J., Farre-Mensa, J., & Ljungqvist, A. (2015). Corporate investment and stock market listing: A puzzle?. Review of Financial Studies, 28(2), 342-390.
Bakar, S., & Yi, ANC (2016). The impact of psychological factors on investor decision-making in the Malaysian stock market: the case of Klang Valley and Pahang. Produria Economics and Finance, 35, 319-328.
Farooq, U., Tabash, M.I., Al-Naimi, A.A., & Drachal, K. (2022). Corporate investment decisions: A literature review. Journal of Risk Management and Finance, 15(12), 611.
Gabhane, D., Sharma, A., & Mukherjee, R. (2023). Behavioral finance: exploring the influence of cognitive biases on investment decisions. Boletin de Literatura Oral-Jurnal Sastra, 10(1), 3133-3141.
Hirshleifer, D. (2015). Behavioral finance. Annual Review of Financial Economics, 7(1), 133-159.
Jiang, F., Kim, K.A., Nofsinger, J.R., & Zhu, B. (2015). Product market competition and corporate investment: Evidence from China. Journal of Corporate Finance, 35, 196-210.
Kartini, K., & Nahda, K. (2021). Behavioral bias in investment decisions: A case study in Indonesia. Asian Journal of Finance, Economics and Business (JAFEB), 8(3), 1231-1240.
Kim, H., & Kung, H. (2017). Asset redeployment channel: How uncertainty affects corporate investment. Review of Financial Studies, 30(1), 245-280.
Kisaka, EK (2015). The influence of behavioral finance factors on stock investment decisions in Kenya (Doctoral dissertation).
Kumar, S., & Goyal, N. (2015). Behavioral biases in investment decision making–a systematic literature review. Qualitative Research in Financial Markets, 7(1), 88-108.
Landi, G., & Sciarelli, M. (2019). Towards a more ethical market: the impact of ESG ratings on corporate financial performance. Journal of Social Responsibility, 15(1), 11-27.
McCahery, J.A., Sautner, Z., & Starks, L.T. (2016). Behind the scenes: Corporate governance preferences of institutional investors. Journal of Finance, 71(6), 2905-2932.
Nofsinger, J.R. (2017). Investment psychology. Routledge.
Sattar, M.A., Toseef, M., & Sattar, M.F. (2020). Behavioral finance biases in investment decision making. International journal of accounting, finance and risk management, 5(2), 69.
Wahba, H., & Elsayed, K. (2015). The mediating effect of financial performance on the relationship between social responsibility and ownership structure. Journal of Future Business, 1(1/2), 1-12.
Zerbo, A., & Hien, L. (2020). General Theory of the Firm: Business Investment Decisions. Working Paper DT/02/2019. Innovation Center
Downloads
Published
How to Cite
Issue
Section
Citation Check
License
Copyright (c) 2026 Jalaluddin Rum, Muhamad Akbar, Miftahul Jannah, Muhammad Hisbullah
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-ShareAlike 4.0 International License. In line with the license, authors are allowed to share and adapt the material. In addition, the material must be given appropriate credit, provided with a link to the license, and indicated if changes were made. If authors remix, transform or build upon the material, authors must distribute their contributions under the same license as the original.
