A Study of the Impact of Investor Sentiment on Corporate Investment Efficiency--Based on the Intermediation Effect of Asset Mispricing

We examine how investor sentiment influences the efficiency of corporate investment, with a particular focus on the role of asset mispricing. Our analysis is based on a sample of publicly listed companies in the Shanghai and Shenzhen A-share markets, covering the period from 2014 to 2023. The findings show that the rise of investor sentiment significantly reduces corporate investment efficiency, and this effect is persistent. Meanwhile, asset mispricing plays a partial mediating role between investor sentiment and corporate investment efficiency, i.e., investor sentiment indirectly reduces corporate investment efficiency partly through increasing asset mispricing. In addition, the detrimental effect of investor sentiment on the investment efficiency of firms is more significant in companies with lower analyst attention and lower long-term institutional investor ownership. Finally, managerial overconfidence reinforces the negative impact of investor sentiment on firms' investment efficiency, and this moderating effect is partly realised through the path of asset mispricing. In view of this, corporate management should maintain rational decision-making and avoid being disturbed by market sentiment; financial regulators need to strengthen sentiment monitoring and information disclosure to enhance market transparency; and investors need to enhance rationality and pay more attention to corporate fundamentals and long-term value.