Research On Industrial Policy,Officials' Incentives And The Peer Effect Of Corporate Investment

Economic characteristics of nowadays is the downward pressure on economic growth and the slowdown in economic growth.In order to adapt to and lead the “new normal”,the primary task is to change the mode of economic growth and to improve the quality of economic growth.At the end of 2015,the CPC Central Committee and the State Council held the central economic work conference,our Party decided “actively and steadily resolve overcapacity” as the first task of 2016 economic work.Overcapacity leads to waste of resources,and will have a negative impact on the economy and society,effectively solve the problem of excess capacity is an important step in the economic growth transformation and optimization.But overcapacity situation is not once formed,the reducing capacity process may be a protracted war needs stick to.By far,the effect of the policy remains to be investigated.Research Report of PanGu think tank shows that from January to October of year 2016,the production increase rate of China's alumina,nonferrous metals,cement,plate glass and other industries that suffer from serious overcapacity still as high as 8.9%,3.2%,3% and 8.8%,and from the yield view,the initial steel production even hit a record high.From a micro perspective,the enterprise is the most basic component of the market,the industry level overcapacity is the accumulation of enterprise level,it is important to investigate the cause of the problem from the enterprise level.From the enterprise perspective,overcapacity and corporate investment decisions are closely related,the process of corporate investment may exist in the interaction of other corporate behavior in the same industry.The peer effect of corporate investment describe the phenomenon.Other enterprises' investment decision will be considered when one company start their own investment decision.Peer effect in corporate investment can result from the chase of common investment opportunities and can also be derived from the mimic behavior of the enterprises from the rest companies of the industry for their own or external reasons.The peer effect of corporate investment may have a disturbing effect on macroeconomic operation.It has two characteristics: one is approaching to the general level of the industry and the other is approaching to the highest level of industry.The discussion based on the heterogeneous forms of peer effect helps open the black box of investment decision process and clarify its internal logic to cause macroeconomic consequences.Given the realistic background of market self adjustment mechanism in China's institutional environment can not effectively play the role,the appropriate government intervention in the market is important.Industry policy is a kind of specific policy guidance,it is realized by the government unified allocation of resources to make up for the deficiency of the market,and to improve the economic efficiency.Industrial policy is the sum of a series of investment opportunities and investment resources,which are very important for enterprises.At the same time,the general policy of China's industrial policies are formulated by the central government,while specific guidance and executive power lies in the local government,local government officials have the characteristics of economic rationality.Under the influence of promotion motivation,they may interfere with the behavior of enterprises through the implementation of industrial policies,and maximize their own utility function.How does industrial policy and local government officials' incentives affect the enterprise investment peer effect? When use industrial policies to regulate and control the local economic,will the local government officials affect the enterprise production capacity utilization efficiency? What is the logic and mechanism behind this non efficiency? The study of these issues will help to explore the effectiveness of industrial policy in China from the perspective of interactive investment decision,and will find the intrinsic motivation of how local government officials implement our industrial policies,so as to provide empirical evidence for alleviating overcapacity situation,optimizing industry policy formulation process and regulating the industrial policy implementation process of the local government officials.In this paper,based on realistic background of overcapacity,we firstly investigate the effect of industrial policy and officials' incentives on the peer effect of corporat investment,and we explore the right degeneration response logic of corporate behand the different type of peer effects that drived by the officials' incentives.And then,from the economic consequences perspective,we explore whether the implementation of industrial policy under the officials' incentives exacerbates overcapacity.Finally,in order to find out the deep logic of enterprise overcapacity,this article investgates the officials' incentives logic and the corporates' right degeneration response logic and their channel.The questions and conclusions are as follows:First,how does industrial policy affect the peer effect of corporate investment,whether this effect has heterogeneity in the enterprises level.This study found that China enterprises showed a mean value peer effect when making investment decisions,but this effect is affected by the industrial policy.Corporates in the industries that are encouraged by the industry policy show a more significant mean value investment peer effect regards to those not being encouraged.And this phenomenon show the heterogeneity of enterprise credit rationing and investment opportunities,when the credit rationing is higher and there are more investment opportunities,this phenomenon is even less.As far as credit rationing is concerned,the effect of investment peer effect under the influence of industrial policy is mainly reflected in the long-term loan.As the local government has an important impact on the acquisition of credit resources and investment opportunities of corporates,the above conclusions have laid the foundation for the follow-up study of local government officials.Second,how do officials' incentives affect the peer effect of corporate investment and whether the peer effect has two sub characteristics under the influence of promotion incentives,what are the economic consequences and mechanism of this effect.This study found that China's Listed Companies' s mean value peer effect that getting close to the general level of the industry is affected by the officials' incentives.When officials' incentive stronger,the company's investment peer effect is weaker.Further study found that.officials' incentive exacerbated the maximum value peer effect of enterprise investment in the industry,leading to excessive investment in the enterprise level,the reason of this phenomenon lies in the firms in the areas where officials' incentive are high obtain more credit rationing.Study on the issue proves up how enterprises make interactive investment decision to deal with local government officials' intervene from the peer effect angle and further opens the black box of corporate investment decision-making process,provides logic guidance to understand the reason of overcapacity.Third,from the perspective of economic consequences,this paper discuss how excess capacity is affected by the incentives of officials under the implementing of industrial policy,what is the internal logic of the impact.This paper argues that the implement process of industrial policy under the officials' incentives shows a non-efficiency characteristics,and from the perspective of enterprise investment peer effect,this paper examines the specific logic and performance of the non-efficiency characteristics,and examines the specific measures of local government officials to implement industrial policies.The study shows that the implementation of industrial policy under the incentive of local government officials led to the excess capacity of enterprises.Based on the logical framework and empirical conclusions,the explanation from the angle of investment peer effect is: the influence of industry policy on corporate investment mean value peer effect exist in the areas that are less affected by the government officials incentives,and in the areas that are more affected by government officials incentives,the industry policy mainly affects the maximum value peer effect of enterprise investment,and there is a positive relationship between the maximum value peer effect and overcapacity.As the mean value peer effect is the general reflection of the enterprise to seek the investment opportunity based on the access to information,and the maximum value peer effect is derived from the enterprise's feedback of the official intervention,these findings reflect the distortion of the implementation process of industrial policy by the local government under the motivation of officials' incentive,by controlling the flow of scarce resources to guide enterprises to make the right choice and ultimately led to excess capacity in the enterprise level.Further research shows that the improper implementation of industrial policy under official incentive is mainly reflected in: for the purpose of guarantee the investment of the enterprise,the government give more credit resources to enterprises,mainly reflected in the aspects of enterprises obtained more long-term loans.The innovation of this paper lies in:First,this article explores the investment behavior of enterprises from the perspective of enterprise investment peer effect,and from this point of view,the paper examines the impact of industrial policy and officials' incentives on corporate investment behavior.This paper divided peer effect into the mean value peer effect and the maximum value peer effect,through this distinction to identify enterpises' inherent right degeneration judgment to deal with government intervention,which expand the research of investment behavior under the motivation of local officials' incentive,and perfected the framework of macroeconomic policy and microeconomic behavior.Second,this paper provide complete evidence for the lack of effectiveness of the industrial policy at the local government officials' incentive level and enterprise right degeneration level,and provides a possible direction to the researchs that aim to enhance the efficiency of industrial policy based on the perspective of strategic interaction between firms.Third,the relevant literature of the previous official incentive usually based on the provincial data,which may miss some of the city level government officials' behavior factors based on promotion incentives and may be affected by the power center distance factor.In this paper we employ China cities as the research object of official incentive problem,based on a more micro perspective to discuss the impact of officials' incentive on corporate investment activities,so as to provide more accurate evidence for related research.