Management characteristics and corporate investment efficiency^*

This paper investigates the relation between characteristics of top management teams (TMTs) and corporate investment efficiency. After controlling for corporate governance and several firms characteristics, we find that firms with better and more reputable TMTs (measured by larger team size, higher percentage of members with an MBA, higher percentage of members with prior executive experience, and higher number of members serving on boards of other companies) are negatively related to investment inefficiency caused by over- and underinvestment. Furthermore, we find that TMT characteristics complement the positive effect of financial reporting quality on investment efficiency. Our findings suggest that better TMT characteristics can mitigate investment distortions caused by over- and underinvestment.