Impact of Investment Efficiency, Investment Scale and Financial Flexibility on Risk-Taking Behaviour in an Emerging Market

There is limited number of studies that explore the concepts of investment efficiency, financial flexibility, and investment scale globally. Moreover, in the African context, these areas continue to be grey areas with limited knowledge on the effect they have on the risk-taking behaviour of listed non-financial firms. Using a data set of 264 firms across 17 countries in Africa over the period 2007‒2018, this study explores the effect of investment efficiency and financial flexibility, as well as the effect of investment scale and financial flexibility on the risk-taking behaviour of firms. The analysis was conducted using the two-step system generalized method of moments (System-GMM), with the robust option. With the z-score as a measure for risk-taking behaviour, the results show that investment efficiency is paramount for enhancing financial stability, but investment scale reduces the financial stability of firms. This nexus is moderated by firm size, and the effect of firm size on financial stability is found to be inverted U-shaped. The finding also shows the decreasing relevance of tangible assets against the growing relevance of intangible assets as the drivers of firm stability. The impact of other factors such as financial leverage, cash flow growth, revenue growth, GDP growth, and inflation are discussed in detail. The results have relevant implications for policy, practice, and future research.