Abstract
We examine the association between strategic deviation and investment inefficiency. We conceptualize strategic deviation as the extent to which the pattern of a firm’s resource allocation deviates from its industry peers. We posit that firms pursuing deviant strategies are prone to increased information asymmetry and hence, are able to engage in self-serving behaviour as manifested in inefficient investments. Our results suggest that deviant firms have sub-optimal investments. A battery of robustness tests validates our findings. We further provide evidence to suggest that weaker monitoring, high product market competition and a low-quality information environment moderate the relation between strategic deviation and investment inefficiency.