Linking Investors’ Crowd Psychology, Credit Financing and Corporate Investment Efficiency

  • Sarfaraz Ahmed Bhutto, Jai Kishan, Zulfiqar Ali Rajper


This study explores the effect of investors’ crowd Psychology on the corporate investment efficiency of the
selected sector companies of Pakistan’s stock exchange with the intervening effect of credit financing.
Mainly, four sectors, among which only 13 public listed companies are selected. Panel techniques are used
and data is collected from the published financial reports of the companies of last 10 years (2010 to 2019).
Share turnover is used to examine the investors’ crowd Psychology. This study discovers that there is a
positive relationship between the investors’ crowd Psychology and over-investment of the organizations
and vice versa, while investors’ crowd Psychology have a significant impact on investment efficiency with
the partial mediating role of credit financing but only in case of underinvestment. Investors’ crowd
Psychology do have a significant effect on overinvestment but it is not due to the mediating role of credit
financing. Due to the optimistic investors’ crowd Psychology, the credit supply is increased, but firms
would have more funds to invest which may cause abuse of corporate funds, but due to strong supervision
functions, this problem is also reduced.