Devaluation of the national currency, along with a decrease in real wages and purchasing power affected the demand side, while slight overinvestment and high exposure to currency risks shocked the supply.
Higher financial reporting quality can limit managerial incentives to engage in activities that degrade corporate value, such as empire-building in companies with excess capital (in other words, limiting overinvestment).
5), "Austrian theory is not an 'overinvestment theory' of the business cycle and was never construed as such by its most notable proponents." In line with Austrian theory and tradition, this means that the bloating of the arrows in Figure 3, relative to Figure 2, is not overinvestment, but rather malinvestment.
Noting that many of the firms she analyzed do not spend enough on R&D to maximize profits while others could realize immediate gains by eliminating R&D overinvestment that is not supporting a higher RQ, Knott advocates achieving higher R&D productivity by determining the optimal R&D spending to maximize RQ, as opposed to relying on empirical benchmarks and managerial intuition to design R&D budgets.
The overcapacity that, until recently, dominated the Chinese economy was rooted partly in a lack of aggregate demand (and partly in wasteful overinvestment).
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