Research On Over-Investment And Its Restrict Mechanism In Chinese Listed Companies

In recent years, Chinese economy keeps a fleet rate of increase. The investment, as one of the Three Carriages of promoting Chinese economic development, plays an important role in promoting China's economy. However, because of over-investment increasing, much resource has been put into one area, which leads resource wasting. Development and growth of enterprises is closely related to its investment, whether the enterprise return on investment can be achieved, related to the maximum value of companies and shareholders, is also related to overall macroeconomic development.This paper is a research about the behavior of over-investment in Chinese listed companies. Over-investment is the investment with negative net present value, which injures the value of whole business enterprise beyond the company growth opportunity or development direction. The Chinese market economy is still at its first stage; furthermore, the ownership structure of most corporate is not reasonable at all. The over-investment trend of Chinese listed company is very obvious and serious under above condition. Over-investment question has become a main hindrance to the quanlity promotion and 1ong-term development of Chinese listed companies. So its necessary to prohibit this behavior.In this paper, the author uses the data of the Chinese listed companies from 2005-2007 to study their over-investment behavior by the aid of Richardson (2006) expected investment model. After proving the existing of over-investment behavior, this study confirmed that there was a significant positive correlation between the over-investment and free cash flow. And last, this paper analyzes the restrict function for over-investment fulfilled by the ownership structure, debt, independent director, mangers share-holding, and cash dividend.The conclusions as follows:.(1)In Chinese listed companies, the over-investment behavior exists.(2)There was a significant positive correlation between the over-investment and free cash flow.(3)The biggest shareholder's property, debt, cash dividend can restrict over-investment.(4)Independent director, and mangers share-holding don't have any influence on over-investment.