Research On The Inefficient Investment Governance Of Listed Companies

Since the1980s, China’s investment management system has undergone four important reforms.Enterprise investment has maintained a high growth more than30years. On the macro level, as theslow increase of consumer income is causing insufficient domestic demand and the economicstagnation in Europe and America is drawing back the export, economic growth has become moreand more rely on investment. Therefore, enhancing invest efficiency is vital to improve the quality ofour country’s economic growth. However, on the micro level, as a result of the imbalance ofcorporate governance and lack of stringent constraint on the conduct of enterprises’ investment, theproblem of inefficient investment always presents. Is there over or under-investment in the listedcompany? Is the enterprise investment efficient? How to control the inefficient investment in listedcompanies? Focusing on these issues, academia has lunched extensive research in recent years. Fromthe corporate governance perspective, this paper systematically studies the causes and governanceissues of enterprises’ inefficient investment. During the study, both positive and empirical researchmethod are adopted. The main contents and conclusions of the research are summarized as follows:1. The paper reviews the research results of inefficient investment theory systematically. This articlereviews the research results in study streams of classical economics and institutional economicswhich relate to enterprise investment, and summarizes systematically domestic scholar’sachievements about inefficient investment.2. This article analyses the financial causes which lead to the inefficient investment deeply.Asset-liability ratio, the level of cash holdings, cash flow, dividend payout ratio, return on equity,fixed asset turnover, operating income growth and investment opportunities are possibly the mainfactors that influence enterprise investment decision. The long-lasting excess liquidity in the market,the distortion of equity financing preference of listed companies and investors distribute preferencelead to investment expenditures could be the main reason that causes there is no significantcorrelation between investment and the following financial indicates: asset-liability ratio, and cashdividend distribution.3. A model is developed to measure enterprise inefficient investment. This paper bases on therigorous analysis of corporate finance to build the multivariate empirical model. The regressionmodel explains the inefficient investment of listed companies well. In order to verify the marketefficiency, this article uses event study methodology and tests the effects of the model of insufficientinvestment behavior. The results prove that the market equips the ability to identify inefficientinvestment behavior of enterprises and it has the high uniformity with the real results.4. The paper systematically evaluates the effects of corporate internal governance factors on theinefficient investment. The increasing of dominant shareholdings exaggerates inefficient investment;while there is a significant positive correlation between proxy for counterbalance to the power ofdominant shareholders; and at the meantime, corporate boards are unable to constrain corporateoverinvestment. Independent directors have not achieved anticipated function of deterring corporateinefficient investment. The evidences show that the plot between dominant and other majorshareholders is the main cause for inefficient investment. Compared with administrative expenses(indicating for post consumption) the function of the cash compensation to control the inefficientinvestment is limited； The age of managers are positively correlated with the level ofunder-investment.5. The paper analyses the major factors about the external corporate governance which affect theinefficient investments. The result shows that corporate governance efficiency by creditors and institutional investors in listed company is extremely limited，however, monetary policy plays asignificant role in the governance of enterprise inefficient investment behavior. How to play thecreditor and the institutional investor’s role in corporate governance is a pressing problem in therules of our country’s market economy.6. The article discusses the quality of information disclosure of listed companies on inefficientinvestment effect. The quality of information disclosure and the efficiency of investment positivelycorrelate; on the whole, the quality of accounting information is negatively correlated with the levelof inefficient investment. The high-quality accounting information can alleviate the agency problemand reduce the degree of information asymmetry， corporate financing constraints, also effectivelycontrol the over-investment. However, it has no significant effect on the under-investment.Based on above research conclusions, I propose five policy suggestions about the inefficientinvestment governance.The main contributions to theoretical research and practice in governing enterprises inefficientinvestment of the paper can be summarized as follows:1. For the specific situation of market in our country, the paper improves the model for measuringthe inefficient investment. The measuring of the inefficient investment is an inevitable researchcontent of this issue. The model which is able to provide a tool for the follow-up study about theseissues in my article has a high goodness of fit.2. This paper presents an examining model of inefficient investment by the market. This paperexamines a new approach of measuring the effectiveness of the inefficient investment model. Theempirical evidence in this paper indicates that these models have strong explanatory power used inthe literature.3. The article presents a framework of studying inefficient investment governance. In this paper, Iinvestigate the enterprise inefficient investment from three aspects: the internal corporate governance,the external corporate governance and information disclosure. These researches provide a completeand systematic analysis framework for multi-perspective follow-up study of the enterprise inefficientinvestment.