A Critical Examination of Corporate Investment Efficiency: Evidence From U.S. Firms

Abstract

We document a broad decline in return on assets ( ROA ) among U.S. public firms from 1963 to 2020, including firms with high growth opportunities, R&D intensity and market power. Many firms earn realized returns below estimated costs of capital and valuation‐implied benchmarks. Declining asset utilization and Richardson‐style investment deviations that increasingly tilt toward overinvestment indicate weakening investment efficiency. Expanding investable funds, rising corporate cash, supportive valuations and limited monitoring may help sustain investment despite weak returns. Similar declines abroad suggest that the U.S. pattern is not isolated. Overall, the evidence points to a persistent deterioration in corporate investment efficiency.