Overinvestment and The Occurrence of Financial Distress

Abstract

This study explores whether the company's excessive investment will cause a financial crisis in the next year Use Richardson (2006) to define the company’s over-investment situation then use the Taiwan Economic Journal (TEJ) database to screen out companies in financial crisis and use the natural logarithm of total assets to select assets three times the size of a financially normal company Logistic regression model is used to measure whether over-investment has a significant influence on the company's financial crisis This study found that when a company over-invests the probability of a financial crisis in the future is significantly positively correlated In addition the empirical results also found that operating profitability asset utilization efficiency financial structure etc are all related to the company’s financial crisis; specifically the debt ratio the market value to net value ratio and the director-supervisory pledge ratio are related to the company’s financial crisis significantly positive correlation while the current ratio cash flow ratio and return on total assets are significantly negatively correlated with the occurrence of financial crises

Date of Award	2020
Original language	English
Supervisor	Meng-Feng Yen (Supervisor)