The effect of superstitious beliefs on corporate investment efficiency: evidence from China

This study investigates the effect of CEOs' cultural-specific superstitious beliefs on corporate investment efficiency in China. Using data collected from Chinese listed firms from 2008-2021, we find that CEOs' beliefs about certain years in the zodiac year limit risk-taking behavior and thus mitigate overinvestment but aggravate underinvestment. Specifically, our findings reveal that superstitious beliefs of the zodiac impact corporate investment efficiency in two directions. For firms already in a state of overinvestment, CEOs' decision not to invest for fear of loss due to their superstitious belief of the zodiac year balances that firm's investment level, yielding a positive effect on corporate investment efficiency. However, in the case of firms that were already in a state of underinvestment, CEOs' risk-avert attitudes due to the same beliefs exacerbate underinvestment. Further, our findings show the effect of such beliefs are stronger in firms with a lower level of marketization, weaker internal control, and less external monitoring. Our findings shed light on the effect of Chinese traditional cultural factors on corporate decision making in emerging economies.