A Study On The Underinvestment And Over-investment Of China's Listed Companies

This dissertation mainly studies the underinvestment and overinvestment phenomena of China's listed companies, and provides a theoretical explanation and empirical analyses for the causes.Main conclusions of the study are as follows: (1) In 1999 to 2004, the underinvestment rather than overinvestment is prevailing in China's listed companies. (2) When mainly using internal funds needed for investment, underinvestment or overinvestment depends largely on the comparison of the private interests and private costs of company's managers, the existing shareholders' supervision and the incentives for the managers. (3) When the internal funds are inadequate for investment and the company must rely on external borrowing, underinvestment or overinvestment depends primarily on the comparison of the private interests and private costs of company's managers, the existing shareholders' supervision, the incentives for the managers and the costs of borrowing. (4) When the internal funds are inadequate for investment and the company must raise capital for investment by issuing new shares, underinvestment or overinvestment depends mainly on the comparison of the private interests and private costs of company's managers, the existing shareholders' supervision, the incentives for the managers, the costs of borrowing, the allocation ratio of company's assets to the new shareholders after the completion of investment and the average expected NPV estimation of the external investors to the company's investment projects. (5) The empirical test supports the hypothesis that the managers of our listed companies mainly have private costs of investment, and the underlying source of private costs are not from the risk aversion or the disutility of the generic action choice of the managers, but largely from investing. (6) In the companies who mainly use debt financing for investing, their underinvestment is mainly due to the inadequate managerial incentives and insufficient supervision of existing shareholders: 1) In the state-owned companies, the managerial incentives are so insufficient that the managers are unwilling to undertake investments. The existence of controlling shareholders did help to strengthen the...