Rates of Return on Corporate Investment

In the last two decades productivity has lagged in the United States, markets have been lost to foreign competition, real income per capita has grown slowly. This experience has led to considerable discussion of possible causes [7]. One possible cause often mentioned is the quality of managerial investment decisions. Managers have been accused of overinvesting in obsolete technologies, of underinvesting in risky projects with long run payoffs, of undertaking unprofitable mergers, and of overall poor judgment in their investment policies [39]. This paper presents evidence on the returns on investment over the 1970-88 period for a sample of 699 large corporations that is consistent with this view.