Research On Institutional Environment, Managerial Power And Investment Efficiency

Ever since the reform and opening-up, remarkable achievements have been made in the economic development in China. There is no doubt that efficient investment activity is the main impetus of the promotion of economic growth. However, in recent years, the o verall investment efficiency is relatively low, and among numerous elements impacting the investment efficiency, the managerial power turns to be one of the hot issues researched by scholars. The modern enterprises with separating ownership and the management form the principal-agent relation between the shareholders and managers. Because of the different objective functions, the profit of managers is in forward direction with the investment scale, resulting in the motivation and possibility of self-serving behaviors in the operating activities of managers. In order to gain more benefit, the managers may select the investment behaviors with the maximum personal interest, which may result in the inefficient investment.The problem concerned in this dissertation is: in the institutional background with more than three decades of reform and opening-up, what‘s the impact of the managerial power on the investment efficiency? In the economic transition period, in which marketization and legalization development was unbalanced, and there was government intervention in the current period of time, and reform of non-tradable shares was accomplished for a decade, what‘s the impact on the relationship between the managerial power and the investment efficiency? Meanwhile, what‘s the economic consequence of the impact of managerial power on the investment efficiency? In order to answer the above questions, a ―reason-regulation-result‖ analysis frame is established based on the theoretical analysis, institutional background and empirical research.At first, the historical background of the formation of Chinese managerial power and development clue is analyzed by starting from the institutional background. It is the process analysis formed for the managerial power, the process of the state-owned enterprise reform and private enterprise development, as well as the constant concentration of the managerial power. The institution environment in China enhances the concentration of the managerial power, and increases the possibility of earning private interest by impacting the investment efficiency with the power.Secondly, the empirical relation between the managerial power and investment efficiency is studied. It is the analysis of the ―reason‖ of inefficient investment. At first, the empirical relationship between the managerial power and inefficient investment is analyzed with the overall samples of listed companies as the research object. And then, considering the impact of the free cash flow, the surplus and deficiency of the cash flow is distinguished, and the empirical relation between the managerial power and over-investment in surplus free cash flow and the empirical relation between the managerial power, and under-investment in the shortage of free cash flow is studied. Finally, the nature of property right is distinguished, the empirical relationship among the nature of property right, managerial power and investment efficiency is discussed comprehensively, and different conditions of distinct nature of property right in the managerial power and investment efficiency are revealed.Thirdly, by starting from the institutional background, the impact of the institutional environmental elements, such as the marketization level, legalization level, government intervention and reform of non-tradable shares, on the relationship between the managerial power and investment efficiency. It is the analysis of the ―regulation‖. Firstly, the impact of the four institutional environments, including the marketization level, legislation level, government intervention and reform of non-tradable shares, on the managerial power and ineffective investment is analyzed. Secondly, the surplus and deficiency of free cash flow is distinguished, and the impact of the four institutional environments, including the marketization level, legislation level, government intervention and reform of non-tradable shares, on the managerial power and possibility of excessive investment during the surplus free cash flow is analyzed, and meanwhile, the impact of the four institutional environments on the managerial power and possibility of under-investment during the shortage of free cash flow is analyzed.Finally, in order to further verify the economic consequences of the investment behaviors implemented by the management layer, system of simultaneous equations is constructed for verifying the relationship among the managerial power, investment efficiency and enterprise performance, and analyzing the economic consequences of managerial power. It is the analysis of the so-called ―result‖.In this dissertation, all A-share listed companies during 2003 and 2013 were selected as the research samples, for studying the above problems. The following conclusions are obtained: firstly, as for the empirical analysis of the managerial power and investment efficiency,(1) when other conditions are controlled, the higher the managerial power is, the easier it will lead to the inefficiency investment;(2) When there is surplus free cash flow, compared with the low managerial power, higher managerial power may lead to over-investment based on the surplus free cash flow; when there is a shortage of free cash flow, the managerial power may relieve the under-investment.(3) When other conditions are limited, and there is surplus free cash flow, compared with non-state-owned companies, the managerial power of state-owned enterprise may result in over-investment easily. When there is a shortage of free cash flow, compared with non-state-owned companies, the managerial power of state-owned enterprise may alleviate the under-investment easily. Secondly, as for the empirical study on the institutional environment, managerial power and investment efficiency,(1) The improvement of marketization level and legalization level, as well as share merger reform may alleviate the inefficient investment caused by the excessively concentrated managerial power, while the government intervention may aggravate the inefficient investment caused by the managerial power;(2) when there is surplus free cash flow, the improvement of marketization level and legalization level, as well as share merger reform and government intervention may alleviate the under-investment caused by the managerial power. Thirdly, as for the managerial power, investment efficiency a nd enterprise performance,(1) when there is surplus free cash flow, the investment behaviors implemented by the managerial power may decline the enterprise performance; when there is a lack of free cash flow, the investment behaviors implemented by the ma nagerial power may also reduce the enterprise performance;(2) The pre-stage good enterprise performance and expansion of investments may increase of managerial power.Throughout this dissertation, the possible innovations are summarized in three aspects: firstly the application range of the managerial power theory is expanded to the specific financial activities of enterprises. In this dissertation, the relationship between the managerial power and investment efficiency is discussed based on the theory of the managerial power. Different from the ―optimal contract theory‖, it mainly starts from the ―residual control right‖ theory, and verifies if the managerial power theory can explain the investment efficiency problem of Chinese companies in the transition period. Meanwhile, different from current documents, in which studies are conducted on the managerial power theory with the executive compensation as the foothold, this study mainly expands the managerial power theory to the specific investment efficiency of the enterprise, enriches and develops this theory. Secondly, combining the shortage of free cash flow, the impact of managerial power on the investment efficiency is analyzed comprehensively. It not only verifies the positive relationship between the managerial power and inefficient investment, but also further segments the free cash flow of enterprise. Besides, it also analyzes the impact of managerial power on over-investment in surplus free cash flow, as well as the impact of managerial power on under-investment in time of insufficient free cash flow, which may make up for the phenomenon in which excessive investment is emphasized while under-investment is neglected. Thirdly, the research mainline ―instructional environment, managerial power-investment efficiency – company performance‖ is established by including the ―institutional environment‖ into the research range. Institutional environment has a significant impact on the operation and development of enterprise. At present, there are few documents including various institutional environments into the relationship between the managerial power and investment efficiency. In this dissertation, the institutional environment is measured from four aspects, including the marketization level, legislation level, government intervention and reform of non-tradable shares. Empirical study is conducted for the impact of institutional environment on the effect of managerial power in listed companies, which not only digs the institutional factors behind the relationship between the managerial power and investment efficiency, but also enriches the research achievements in the dynamic changes in governance, and expands the study on the managerial power and investment efficiency into the external macro-environment of enterprise.