Empirically Study The Effect Of Product Market Competition On China's Listed Companies' Investment

The relationship between product market competition and corporation investment behavior has been studied as early as 1960. Frederic M Scherer investigated the relationship between market structure and the stability of investment, and found that corporation investment behavior had been greatly influenced by market concentration. Later there are many scholars have studied this theme from different aspect. Recent years there are a number of puzzling phenomena for investment behavior of china listed companies, such as frequently changing investment project and low investment efficiency. And many scholars have studied it from different point, but there is little literature has studied it from the aspect of product market competition. On base of the principal-industrial theory, corporation investment theory and corporate governance theory, combining the research method and conclusion of former literature and the special research background in china, this paper develops our hypotheses and investigates the relationship between product market competition and investment behavior, hoping to get much more empirical evidence for corporation investment behavior in china.This paper set a multiple regression model, in which investment spending was the dependent variable and the degree of product market competition was explaining variable. In the case study we used all listed companies from 2002 to 2005 as the sample. The regressive result demonstrated that product market competition is negatively related to corporation investment spending. In order to get much more information, we subdivided our sample by capital structure and controller type and got another regression results using the same model. There seems to be some difference among sample groups: the negative relation between investment spending and product market competition was stronger in firms with high debt ratio than that of low debt ratio, it's because that firms with high debt ratio had larger financial risks and to control the whole risk, they must pay much attention to the product market and decide their investment spending with consideration of product market situation. At the same time, the negative relation between investment spending and product market competition was weaker in firms controlled by state-owned stock than that of non-state-owned stock, since the state-owned firms were seriously controlled by insiders and the market's governance efficiency was narrowed. It's well known that capital structure and investment are closely associated, in this paper we also empirical analyzed how capital structure influence corporation investment behavior in different product market. We found that in competitive group, investment spending were strongly negative related to capital structure. And in monopoly group their negative relationship was weaker than that of the former group.The following is the main distinguishing feature of the paper: first, due to the lack of comprehensive review on the relationship between product market competition and listed companies'investment, this paper gives summaries of it. Secondly, this dissertation investigates the characteristic of corporation investment behavior under different concentration of product market, and reveals the effect of product market competition on corporation investment decision.