Study On Product Market Competition And The Legal Protection Of Investors

At the end of the 20th century, legal and financial research created by La Porta,Lopez-de-Silanes, Shleifer and Vishny(LLSV), makes us realize that the legal protectionof investors is the most important one of factors that impact corporate governance andfinancial development,and strengthen the legal protection of investors is one of the mostfundamental way that improve corporate governance and financial development.However,In transition economy countries there are many difficulties in the situation of legalprotection of investors and legislative reform. Attempt to rapidly improve in the level oflegal protection of emerging market countries in the short term in, is obviously not veryrealistic. So to broke the research paradigm that concerned about the formation of the legalsystem since LLSV (1998), and at the same time steer system of laws concerned about theproposed legal reform and alternative measures in transition economy, as the pioneeringwork of research fields. At present, non-legal governance mechanisms research hasbecome the new hot spot about the International Corporate Governance Research after the"law and finance" literature. The emergence of this field of study has important policyimplications for some emerging market countries (such as China) with relatively weaklegal protection of investors,this country can use non-legal governance mechanisms (suchas product market competition, the media, tax, etc.) to actively improve their corporategovernance at this stage, protect investor interests, improve their level of financialdevelopment.Combined with China's actual situation, how to constantly improve the level of legalprotection for investors at the same time, design and develop effective non-legalgovernance mechanisms in China are a major issue faced by the academic and practicalindustry and the securities regulatory departments. At present, the non-legal protectionmechanisms research in China is still in its infancy, research is also small, is still in a morefragmented and the lack of systematic analysis of the level, should be strengthened.Therefore, consideration based on the importance of the issue and relatively scarcety aboutrelated research, as soon as possible on the theory and empirical research of non-legalprotection system of China's listed companies, whether it is to enhance of understanding and knowledge of the system of the non-legal protection, or to fill the the field ofsystematic research gaps, no doubt of great significance.On the basis of literature abroad this paper combine the actual conditions of listedcompanies in China's,use product market competition as an entry pointstarting of thenon-legal governance mechanisms, of from the legal protection of investors and productmarket competition with the listed companies to pay cash dividends, cash holdings andcapital allocation efficiency, analysising and testing in detail of the China's legalprotection of investors and product market competition on the market the company'sfinancial behavior, the paper analysises and testes in detail how to China's legal protectionof investors and product market competition impact to pay cash dividends, the value ofcash holdings and the impact of capital allocation efficiency, and how to product marketcompetition to make up for lack of legal protection for investors. The conclusions of thisresearch are as follows: Firstly, with the level of legal protection of investors and thedegree of product market competition to improve, cash dividends of listed companiesincreased. And when there is a lower level of legal protection, the intense competition inproduct markets can make up for lack of legal protection, force the company's manager tospit out excess free cash flow, to pay more cash dividends to shareholders. But when thereis higher level of legal protection, product market competition should not have asignificant impact on the company's cash dividend payments. Further research shows thatwhen investor protection legal system and legal environment are better, the product marketcompetition have no significant impact on cash dividend payments, and when investorprotection legal system and legal environment are poor, product market competition havea significant impact on cash dividends payments. Secondly, with the improvement in thelevel of product market competition, the value of a unit of cash holdings of corporatecontinuously improve. Vis-(?)-vis non-state-owned enterprises and poor legal environmentareas, with the improvement of the degree of product market competition, the value of aunit of cash holdings of the state-owned enterprises and corporate that lie in thedisadvantaged legal environment enhance more visible. Finally, as legal protection ofinvestors and product market competition in China to improve,the level ofunder-investment and over-investment have been reduced effectively, enterprisessignificantly improve investment efficiency. Further study found that, compared to higher levels of legal protection of investors, when there is a lower level of legal protection ofinvestors, the intense competition in product markets can more visible to improve theefficiency of the capital allocation, and the intense competition in product markets canmake up inadequate protection of the law.This study shows that in our country to improve the legal protection of investors willbe a long process, and in the near future we should adhere to constantly improve the legalprotection of investors, at the same time make full use of product market competition andother non-legal governance mechanisms to improve and enhance level of govemance oflisted companies to protect the interests of investors. Therefore, this research hasimportant theoretical and practical significance.