Growth opportunity and investment policy: The role of managerial incentives

Abstract

Based on the neo-classical theory of investment (Tobin's Q), this study looks at how growth opportunity drives investment policies and the extent to which this relationship is sensitive to managerial incentives. We use data from 213 non-financial and non-utility UK FTSE 350 firms for the period 2007–2015, generating a total of 1748 firm-year observations. We uncover that growth opportunity firms invest more in fixed intangible assets but less in tangible capital assets activities. We further observe that the growth opportunity-fixed intangible assets' investment is more sensitive to executive compensation incentives. Our results remain robust to alternative econometric models.