Title

efficiency - Calculate investment efficiency based on Richardson (2006) model with single Excel file import functionality

Authors

Wu Lianghai

School of Business, Anhui University of Technology (AHUT), Ma'anshan, China

E-mail: agd2010@yeah.net

Wu Hanyan

School of Economics and Management, Nanjing University of Aeronautics and Astronautics (NUAA), Nanjing, China

E-mail: 2325476320@qq.com

Chen Liwen

School of Business, Anhui University of Technology (AHUT), Ma'anshan, China

E-mail: 2184844526@qq.com

Liu Changyun

School of Business, Anhui University of Technology (AHUT), Ma'anshan, China

E-mail: 2437563124@qq.com

Syntax

efficiency ,

FILEpath(string)

[SHEETnum(integer)

SAVEpath(string)

REPLACE]

Description

efficiency calculates investment efficiency measures based on the Richardson (2006) model.

This version includes functionality to import and merge data from multiple sheets within a single Excel file.

The program automatically imports data from multiple sheets (Sheet1 to Sheet10 by default) from the specified Excel file,

merges them into a panel dataset, and then estimates the investment efficiency model.

The investment efficiency model follows Richardson (2006):

Invest_it = α + β₁·L1.Invest_it + β₂·L1.Size_it + β₃·L1.Lev_it + β₄·L1.Cash_it +

β₅·L1.Age_it + β₆·L1.Return_it + β₇·L1.TobinQ_it + β₈·State_it + β₉·L1.SalesGrowth_it +

YearDummies + IndustryDummies + ε_it

Where:

- Invest_it: Investment expenditure in year t

- L1.Invest_it: Lagged investment expenditure

- L1.Size_it: Lagged firm size (log of total assets)

- L1.Lev_it: Lagged leverage ratio

- L1.Cash_it: Lagged cash holdings

- L1.Age_it: Lagged firm age

- L1.Return_it: Lagged stock return

- L1.TobinQ_it: Lagged Tobin's Q

- State_it: State ownership dummy

- L1.SalesGrowth_it: Lagged sales growth

Investment inefficiency is measured as the absolute residual from the model:

Abs_InEff = |Invest_it - Invest_Predicted_it|

Over-investment and under-investment are calculated as:

Over_Invest = max(0, Invest_it - Invest_Predicted_it)

Under_Invest = max(0, Invest_Predicted_it - Invest_it)

Options

FILEpath(string) specifies the path to the Excel file containing multiple sheets. Required.

SHEETnum(integer) specifies the number of sheets to import from the Excel file. Default is 10.

SAVEpath(string) specifies the path and filename to save the results dataset.

REPLACE allows overwriting an existing file when used with SAVEpath.

Data Requirements

The program expects a single Excel file with multiple sheets (Sheet1 to Sheet10 by default) with the following structure:

- Each sheet should contain a stkcd variable (firm identifier)

- Each sheet should contain either a year variable or a date variable

- Sheets should contain various financial variables (invest, size, lev, cash, age, ret, tobinq, state, salegrowth)

- One sheet should contain a code variable for industry classification

Examples

Basic usage with default 10 sheets:

. efficiency, filepath("E:\research_data\rawdata.xlsx")

Specify different number of sheets:

. efficiency, filepath("E:\research_data\rawdata.xlsx") sheetnum(8)

Save results to file:

. efficiency, filepath("E:\research_data\rawdata.xlsx") savepath("results.dta") replace

Stored Results

The program adds the following variables to the dataset:

Invest_Predicted: Predicted normal investment level

Abs_InEff: Absolute investment inefficiency

Over_Invest: Over-investment measure

Under_Invest: Under-investment measure

The program also displays summary statistics for these variables.

References

Richardson, S. (2006). Over-investment of free cash flow. Review of Accounting Studies, 11(2-3), 159-189.

Biddle, G. C., Hilary, G., & Verdi, R. S. (2009). How does financial reporting quality relate to investment efficiency? Journal of Accounting and Economics, 48(2-3), 112-131.

Chen, F., Hope, O. K., Li, Q., & Wang, X. (2011). Financial reporting quality and investment efficiency of private firms in emerging markets. The Accounting Review, 86(4), 1255-1288.

Acknowledgments

We sincerely appreciate Christopher F. Baum for his prompt guidance and revision suggestions.

Also See

Manual: [D] import_excel, [R] xtreg, [R] predict