Corporate General Counsels and Investment Efficiency: Novel Evidence

ABSTRACT We examine whether the presence of corporate general counsels (GCs) is associated with investment efficiency using both conditional and unconditional regressions. Utilizing a large sample of publicly listed US firms, we find that GCs are associated with higher investment in environments prone to underinvestment and lower investment in environments where overinvestment is likely. Firms with GCs also display less deviation from predicted investment levels, supporting the GC gatekeeper role. We further demonstrate that GCs reduce information asymmetry, which in turn improves access to capital and ultimately enhances investment efficiency. Additional tests reveal that certain GC characteristics, including age, tenure, and executive rank, enhance investment efficiency. Moreover, we find that CEO expertise complements the influence of GCs, as skilled CEOs and GCs work synergistically to improve decision‐making and address investment inefficiencies. Finally, the impact of GCs is particularly significant in the post‐SOX period, underscoring the importance of regulatory oversight.