Patient Capital and the Governance of Inefficient Investment and Overcapacity: A Factor Allocation Perspective

Abstract

Inefficient investment and persistent overcapacity remain central concerns in modern economies, particularly in contexts where capital markets and corporate governance structures are imperfect. This paper examines the role of patient capital in mitigating these problems from the perspective of factor allocation. Rather than treating inefficient investment as a purely behavioral or agency-driven phenomenon, the analysis situates it within a broader framework of resource misallocation within firms. Patient capital, characterized by long investment horizons and tolerance for delayed returns, is argued to influence firms not only by alleviating financing constraints but also by reshaping internal allocation mechanisms and governance structures. Building on existing empirical and theoretical insights, the paper develops a mediation framework in which factor allocation efficiency serves as the transmission channel linking patient capital to investment outcomes. The analysis suggests that patient capital reduces both overinvestment and underinvestment by stabilizing expectations and altering the criteria through which resources are deployed. The findings contribute to the literature by integrating capital structure, governance, and allocation efficiency into a unified analytical perspective.