An Empirical Investigation Into The Phenomenon Of Entrusted Investment By China's Listed Companies

As entrusted investment by listed companies involves the efficient capital allocation and healthy development of the securities market as well as the good quality of listed companies, research on its behavior and impact is critical in bringing into play the capital allocation function of the securities market and protecting the interests of investors.Based on the empirical analysis, our study reveals that: (1) companies with underperformance in core operations tend to manage their earnings by entrusted investment; (2) financing activity does have a significant impact on entrusted investment by listed company. Companies with lower debt ratio or with recent equity financing tend to do it. (3) There is a significant difference in the use of equity financing fund between non-entrusting companies and entrusting companies. Entrusting companies use their fund more inefficiently. The result shows that the recent boom of entrusted investment by listed companies results from their motivation for "money encirclement" or earning management. Companies that entrust their fund in listed-securities investment under-perform their counterparts in asset turnover and company growth.