Market Inefficiencies and Corporate Investments: Insights from Extended Literature Review

Abstract

This study intends to examine the effects of market inefficiencies on corporate investments through literature review. This study finds that there are three types of market efficiencies- allocation, operational and informational efficiency, and allocation efficiency depends more on informational and operational efficiency. Furthermore, the investors cannot beat the market and earn more profit if the market is efficient; however, the degree of efficiency varies across markets; thus, the markets are categorized into three forms of market efficiency. In the existence of asymmetric information, the corporate prefers to raise funds by issuing debts and invest less amount. The study ascertained that transaction costs, anomalies, asymmetric information, information unavailability, and discrepancy of investors cause capital market inefficiency which further affects the corporate investment decisions.