Research On Non-Efficiency Investment Of Agricultural Listed Companies

Investment promotion is the key to nurturing and growing the agricultural listed companies. To promote the investment we must ensure the interests of the investors, by strengthening the corporate governance so as to prevent the non-efficient investments. The neoclassical theory of enterprises investment has proved that the corporations can automatically adjust the capital scale to the optimal level, by comparing the marginal revenue and marginal cost of investment in frictionless market. However, due to financing constraints and the principal-agent problems, the scale of the corporations may be below or above optimal scale. Enterprises maybe suffer two non-efficient investment --underinvestment or overinvestment. Non-efficient investment is a waste of social resources and shareholders’wealth.Although recearches on non-efficient investment have developed aggressively. However, different scholars have concluded very differently by using different data from different angles. Different industries show different characteristics of revenues, risks, adjustment costs and institutional background. We can not extend the conclusions of one industry to other industries without validation. What investment characteristics the Chinese agricultural listed companies have? Will they face serious financing constraints (or soft budget constraints, the principal-agent problems) and underinvestments (or overinvestments)? If their governance mechanisms can alleviate financing constraints,agency problems, and prevent underinvestment or overinvestment? This paper research on sucn problems and put forward some proposals. The research on non-efficient investment of listed agricultural companies will have both theoretical and practical significance. Firstly, the study is a supplement and innovation to current western investment theories. Secondly, the mitigation of inefficient investment can not only improve the efficiency of resource allocation, but also can increase the investors’wealth. Only the investors’wealth can be guaranteed, they are willing to invest and extand the agricultural listed companies scale. Only the scale, the agricultural listed companies can play a full role in the industrialization of agriculture and rural construction. This paper is mainly divided as follows:Recearch 1:the investment characteristics of agricultural listed companies and non-efficient investment behaviorBased on characteristics and operating institutional environment, this paper shows that agricultural listed companies’investment has four distinctive characteristics. First, their investments have lower profitability, longer business cycle and longer payback period, which is contrary to investors’ risk-benefit balance. It will make agricultural listed companies face even more financial constraints and under-investment than the other sectors. Second, the government gives agricultural listed companies more supporting and intervention. If the supporting and intervention can be negotiated, it will form a soft budget constraint which will increase more principal-agent problems and non-efficiency investments. Third, the investment in agricultural listed companies is irreversible. This will make the investment more risky, investors will be more careful in the investment decision-making. Irreversibility also can reduce the collateral value of their assets and their competitiveness in the credit markets, exacerbate their financing constraints and under-investment. Fourth, the investment in agricultural listed companies is always large-scale, and is mainly concentrated after the large-scale financing. Financing constraints are the key factors affecting the investment behavior.Receach 2:the analysis and judgment of agricultural listed companies financing constraints This paper analyzes the financing constraints status of agricultural listed companies. It is found that agricultural listed companies’ability to create cash flow is very low. They are facing endogenous financing constraints. In order to improve their profitability, the government has lowered their taxrate, and the tax-preferential has some flexibility. Compared with non-agricultural listed companies, in the case of low solvency, agricultural listed companies have lower loan interest rates, higher loan amount, and more frequent use of secured loans, but the shorter term, the lower success rate, the lower proportion of long-term borrowings. In crediting to agricultural listed companies, commercial banks has taken into consideration not only the requirements of national support policies, but also the interests of the banks themselves. Agricultural listed companies are facing both credit price discounts and credit rationing at the same time. Although without a significant increase in the proportion of stock market financing, the shareholders of agricultural listed companies suffer significantly lower yield compared to the risks. The agricultural listed companies have lower cost of equity financing. Agricultural listed companies have lower cost of equity financing.Research 3:financing constraints and the judgement of agricultural listed companies’ inefficient investmentBecause it is difficult to observe directly and judge the degree of financing constraints, soft budget constraints, under-investment and overinvestment. This paper determines whether there is non-efficient investments in agricultural listed companies through observing both the sensitivity between the investment, liquidity and the market reaction. By the empirical examination, this paper finds it is not the investment opportunities, but the size of the liquidity reserve determines the rate of investment in agricultural listed companies. Financing constraints is the key factor in investment decision. Profitability and long-term solvency are the keys to easing financing constraints. Although the investment opportunities reduce agricultural listed companies, they still increase the investment with the increse of liquidity reserve. It is proved that there exists excessive investment. If the government can not internalize the external benefits through subsidies, the attractiveness of agricultural listed companies will be reduced, and finaly their investment will be inhibited.Research4:corporate governance and the non-efficiency investment of agricultural listed companiesCorporate governance is the key to mitigating non-efficiency investments. It can not only ease financing constraints but also manage moral hazard. Agricultural listed companies’ownership is concentrated on the largest shareholder and other shareholders are difficult to check and balance the largest shareholder. Agricultural listed companies’controlling shareholders are mostly government and natural persons. No institutional investors have controlling positions. This will reduce the professional oversight. Due to the leading role in the allocation of resources, state-controlled, controllingrights-concentrated agricultural listed companies are easy to mitigate financing constraints and under-investment. The private agricultural listed companies have higher financing constraints and insufficient investment.Agricultural listed companies’managerial compensation has more relevance to enterprise scale, while less relevance to performance. Generally speaking, Managerial compensation design has not been able to play the role of correctiing non-efficiency investment. However, the private enterprises’ managerial compensation design has played an active role in easing financing constraints and under-investment, and reduced the dependence of investment to liquidity.Due to low profitability of agricultural listed companies, free cash flow does not exist in general. The liabilities plays a little role in reducing principal-agent problem between shareholders and managers.The main problem of the liabilities is aggravating the financing constraints and insufficient investment by repayment of principal and interest.Based on the conclusions of the above study, we think that financing constraints have become the key factor restricting agricultural listed companies to reflect on investment opportunities, because the agricultural listed companies’ ability to create cash is low, but their investment is always large-scale. Agricultural listed companies’governance and compensation mechanism has not been able to give full play to ease their financing constraints, the principal-agent problems and the non-efficiency investments. Only by improving the profitability and corporate governance of agricultural listed companies, internalizing the external benefits of investment by government subsidies, we can really ease their financing constraints, the principal-agent problems and non-efficiency investments. At the same time we must realize if the government subsidies can be negotiated, management incentive will be impaired.