The effect of money supply on investment efficiency

Zandi Baghcheh Maryam, Asra; Sajjadi, Zanyar; Mozaffari, Zana

doi:10.48308/jep.2025.240657.1233

The effect of money supply on investment efficiency

Document Type : Original Article

Authors

¹ Master of Science in Accounting, Faculty of Humanities and Social Sciences, University of Kurdistan, Sanandaj, Iran.

² Assistant Professor, Department of accounting, Faculty of Humanities and Social Sciences, University of Kurdistan, Sanandaj, Iran.

³ Assistant Professor of Economics, University of Kurdistan, Sanandaj, Iran

10.48308/jep.2025.240657.1233

Abstract

In the modern economy, investment is the primary driver of economic development and value creation within firms. Improving investment efficiency by optimizing the selection of financial resources can lead to economic growth. From a conceptual standpoint, finding, funding, and carrying out projects with a positive net present value is known as investment efficiency. Monetary policies, as key tools of central banks, influence economic stability and the direction of financial flows. These policies, through variables such as interest rates, liquidity, and the money supply, affect investor behavior and corporate decisions. Based on this, the present study investigates the relationship between money supply and investment efficiency. The statistical sample for this study comprises 134 Tehran Stock Exchange-listed companies over 11 years, from March 21, 2013, to March 19, 2024. Data are estimated applying panel data to the generalized method of moments (GMM). The findings suggest that the money supply possesses a statistically significant and positive effect on investment efficiency. Furthermore, the findings suggest a negative and statistically significant impact of the money supply on insufficient investment, as well as a positive and statistically significant effect on excessive investment. These results suggest that an expansive monetary policy reduces the level of inadequate investment while increasing the level of overinvestment. This study emphasizes the impact of the money supply on various economic sectors. It makes sense for investors to diversify their investment portfolios and mitigate risks arising from sudden fluctuations in monetary policies.

Keywords

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