The Study On Micro Efficiency And Macro Effect Of Investments By Listed Companies Controlled By Central State-owned Enterprises

As the China races headlong into21st century amid reform paces, the country’s state-owned enterprises ("SOEs") have achieved blazing progress, albeit with mixed comments. The negative remarks focus on the alleged monopoly, operating inefficiencies,"resource hogs", encroachment of private sectors etc.. It posed a question to be clarified and resolved on whether SOEs as alleged, are facing operating inefficiencies, and how to evaluate their effect on China’s economy on a thorough and objective basis.This paper uses listed companies controlled by central SOEs as samples and leverages econometric approaches, based on investment expenditures of SOEs, to conduct a comparative study with respect to the microscopic efficiency of investment expenditures and the impact of investment expenditures on macroeconomic volatility and further deepen the above study from the perspective of the special corporate governance factors and characteristics of listed companies controlled by central SOEs, while summarizing and describing the theory of enterprise investment, the microscopic efficiency of enterprise investment, the study on the theory related to the correlation between investment and macroeconomic volatility, as well as the history and corporate governance characteristics of China’s SOE investment system.First, it begins with the study on microscopic investment efficiency of listed companies controlled by central SOEs by plugging the balanced panel data of166listed companies controlled by central SOEs in2003-2011into the Richardson (2006) model for quantification of their expected capital expenditures, to help to judge whether there are investment inefficiencies based on the difference between actual and expected capital expenditures. According to the empirical result, investment inefficiencies are found in listed companies controlled by central SOEs in the reality. Besides, both over-investment and under-investment exist at the same time. Overall, those companies are featured with over-investment as over-investment is higher than under-investment in terms of frequency and extent. The over-investment samples are further used to carry out an empirical survey at the corporate governance level, with respect to the impact on over-investment from corporate governance factors such as shareholding structure, board characteristics, manager incentives and debt management. It was found that central SOEs have absolute control over the shareholders’ meeting, resulting in ineffective balance-and-check relationships among shareholders; the board governance is somehow effective, but independent directors have not yet discharged the supervision function; a reasonable remuneration system of the management is conducive to curbing over-investment. Non-banking debts which are subject to hard constraints can also inhibit over-investment.Besides, the perspective of the study is shifted to the impact on macroeconomic volatility from investment expenditures of listed companies controlled by central SOEs. The samples of the above study on microscopic investment efficiency are also used here to carry out a time-series empirical analysis of the correlation between investment expenditure accretion of central SOEs and macroeconomic volatility (represented by industrial production gap obtained with the Hodrick-Prescot filter). It was found that the correlation between investment expenditure accretion and macroeconomic volatility presents a counter-cyclical characteristic, suggesting that the investment by central SOEs, on an objective basis, helps to smoothen the macroeconomic volatility and stabilize the economic development. Next, an empirical analysis is made with respect to the impact from three factors (i.e., shareholding structure, debt structure by source and corporate profitability) on the cyclical correlation between investment expenditures of the listed companies and macroeconomic volatility. It was found that the increase in the proportion of state-owned shares and foreign shares can help to undermine the cyclical effects, while the size of bank debts obviously restrain the counter-cyclical ability of listed companies. The lower the profitability of a company, the more obvious the counter-cyclical characteristics are in listed companies.Through the above comparative studies, a more thorough and comprehensive knowledge of the role played by SOEs in the economy is provided:Although sometimes the investments by SOEs have no microscopic efficiency, it helps to smoothen the economic volatility on a macro basis and safeguard the stability of economic development. On a micro basis, the sacrifice of individual enterprise efficiency may be beneficial to the overall macro economy (or the stable economic growth as a whole); in other words, the sacrifice of individual enterprise efficiency is in favor of some measures for smoothening economic volatility through SOEs’ investments. Therefore, it is also necessary to pay attention to the balance between microscopic efficiency and macro effect when SOEs are playing such a role.Compared to similar documentation, the potential innovations in this paper mainly include three aspects: (1) Generally, studies on the efficiency and role of corporate investments focus on either microscopic investment efficiency or the impact of corporate investments on macro economy. This paper draws upon investment expenditures of listed companies based on the panel data for a same group of central SOEs, discussing the microscopic investment efficiency of listed companies from a cross-sectional perspective. Meanwhile, time series are utilized to discuss the impact on macroeconomic volatility from investments of the listed companies, thus providing theoretical supports and empirical evidences for a thorough evaluation on the role of central SOEs in an economy.(2) Most of researches on the impact of investments on macroeconomic volatility are based on time series data of macro investments, seldom using corporate microscopic investment data as an interpreter. In this paper, microscopic data of investment expenditures by listed companies controlled by central SOEs are used to carry out an empirical test for the impact of corporate investments on macroeconomic volatility, revealing their obvious counter-cyclicality unlike common enterprises; which implies the investments of listed companies controlled by central SOEs have a smoothing effect against macroeconomic volatility.(3) By incorporating the unique corporate governance characteristics of listed companies controlled by central SOEs (including shareholding structure and debt management) into the study, this paper provides a new "corporate governance" perspective for the study on the impact of microscopic investment efficiency of central SOEs on macroeconomic volatility and their correlation.