Research On Over-investment Behavior And Formation Mechanism Of Listed Companies In China

As an important basis for corporate finance, investment decision-making behavior of listed companies is one of the main factors to promote the growth of company's future cash flow. In particular, it's an important force to promote the development of the company. However, due to the impact of macro and micro level, imbalance of the system environment between different areas, poor company mechanisms, etc. Investment behavior is not always match their own conditions, which would result in ineffective investment such as Over-investment and under-investment, ultimately damage the company's value, impede it's development. Therefore, to study investment behavior of Chinese listed companies over the formation mechanism, would be of important theoretical and practical significance for both China's listed companies, and the securities market.Based on the above understanding, from the following three aspects such as the free cash flow, corporate governance and institutional environment, this article has studied the forming mechanism of over-investment in Chinese listed companies. This article selects the annual data from the Shanghai and Shenzhen stock markets during the period 2005-2009 as the study sample, uses the method of empirical, to examine the impact of free cash flow on the over-investment, to make the research of over-investment more comprehensive, this article make further study with the classification of different ultimate controllers and institutional environment.The main conclusions of this paper as the following three points: First, the agents of free cash flow is widespread in China's state-owned listed companies, and have positive influence on the company's over-investment behavior,further, the samples are divided by the ultimate controllers into local government, central government and non-governmental control as three types, concluded that the over-investment behavior caused by the free cash flow more likely happen in the former than the other two; Second, with strengthen the independence of directors and manager ownership mechanism, the over-investment behavior is not remarkably controlled; Third, the institutional environment can have some effect on over-investment, in which investment environment has stronger influence on the listed companies under the central government's control, while the government efficiency has stronger influence on the listed companies under local government's control,however, both are difficult to make impact on the non-government-controlled listed companies.