Research On Inefficient Investment Of State-owned Listed Companies

To improve the efficiency of business investment is an important research issue of corporate governance. The paper started from the external corporate governance, perspective on the governance of local government, to study the inefficient investment of local state-owned listed companies. We are guided by agency theory, contract theory, asymmetric information theory and local government competition theory, Analyzed the affect of the governance of local governments to the inefficient investment of local state-owned listed companies. Through the theoretical analysis of the governance of local governments and inefficient investment of local state-owned listed companies and empirical modeling and the data of local state-owned listed company between 2005-2008, the conclusions are made as the followings:Firstly, under the decentralized system, the objective of the governance of local government is multiple as the influence of the yardstick competition among local governments and officials of promotion incentives and other factors. Due to the increasing competition of the local government as well as regional and local economic endowment and differences of interests, the governance of local governments has a greater influence on the investment decision of the local state-owned enterprises. Influenced by the objective of governance of local government, the objective of the local state-owned enterprises also demonstrates multiplicity. Their investment decisions are not only from the value maximization, in the particular circumstances, they may consider the realization of political achievements primarily, this consideration is likely to have a negative impact on simple earning goal of corporate, and leading to the emergency of inefficient investment in the state-owned enterprises. Secondly, there are three ways to for the local government to influence the inefficient investment of the state-owned listed companies. First, through the control or the influence of the majority shareholder; second, through the policy formulation and implementation of local government; third, through the administrative means.Thirdly, the demonstration indicates that inefficient investments exist universally in the local state-owned listed companies. And when our local state-owned enterprises make capital investment decision, it is the scale effect that overweighs the consideration and the investment profitability takes the second place by comparison. According to previous inference, the local state-owned enterprises might be influenced by the governance of local government and the interests of their governors, because the enlargement of the enterprise scale can strengthen the local strategic status of state-owned enterprises, promote the local economy and increase the jobs, and lead to realization of the management goal of local government. Meanwhile, the enlargement of enterprise scale is beneficial for the promotion of local state-owned enterprise management level.Forth, in investment of local state-owned listed companies, cash flow is sensitive to make the decision. That is because it is common the local state-owned enterprises encounter soft budget constraints, so they are not sensitive to the debt ratio. And the positively correlation between the current investment expenditure and the historical investment expenditure indicate that it has a sustainable growth of the investment by local state-owned listed companies. As the reformation of local state-owned enterprises, enterprises with a large scale have more power to bargain with the local government and their governors are much inclined to pursue the political achievements in order to increase their own interests and get more political encouragement, which are also the reasons why local state-owned enterprises make inefficient investments.Fifth, the empirical evidence demonstrates that the inefficient investment of our state-owned listed enterprises is positively correlated to the governance of local government, when the local government applied inappropriate administrative measures in order to achieve the political performance. The governance of local government affects significantly the insufficient investment of local state-owned listed companies and that over-investment of local state-owned listed enterprises has no significant relation with the governance of local government.Sixth, due to regional differences of economical endowments and the existence of the differences of interests of local governments, the governance of local government affects the inefficient investment of local state-owned enterprises differently, that is, the governance of local governments affects the inefficient investment of local state-owned enterprises in different ways. For example:in areas with a less developed marketization comparatively, the administrative means of local government is the main factor that influences greatly the inefficient investment of local state-owned enterprises, while in areas with a higher developed marketization, both the administrative means of local government and the governance of the local state-owned enterprises are possible to cause the inefficient investments.