Investor Protection Agency Costs And Corporate Capital Investment

The investment decision-making plays an important role in the three major financial decisions of the listed company, efficient investment in the sustainable development of the company's future cash flow growth momentum and an important foundation. Whether the company's capital investment decision is efficient not only closely related to the internal governance structure, but also influenced by external governance environment. Based on this, we selected agency costs and investor protection as a starting point to study how the two affect investment decisions of listed companies.This article refers to a " Dual Agency Costs " concept. Based on the analysis of investment-cash flow sensitivity of the listed companies in China, we first built up a model between the agency cost and the efficiency of investment, to research how the agency cost affect on capital investment decisions; then considered with the institutional Background, lead the Variable of investor protection into the model, test whether investor protection can act as a governance mechanism, to reduce the impact of agency cost on capital investment effectively. This Article take the capital investment as the main line, inspect the agency costs and investor protection, Empirical research the company's capital investment decisions from the view of internal governance structure and external governance environment.The main conclusions of this thesis are as follows:1st The investment of the listed companies of China are very sensitive about the cash flow, there is a strong relation between investment and cash flow. Besides, this research founds out that the main reason of the high sensitivity of investment - cashflow is not insufficient investment but over-investment. This conclusion make further support of the free cash flow hypothesis(Jensen,1986).2nd. Use the total asset turnover(TAT) and management expense ratio (MER) as substitution variable of the first agency costs, the agency conflicts between share holders and administrator, can make the listed companies'over-investment even worse.3rd Use the DEV as a substitution variable of the second agency cost, the agent conflicts between control shareholders and other shareholders, can make the listed companies' over-investment even worse too.4th. The higher level region of investor protection have a lower level of over-investment. The level of investor protection have an negative correlation with over-investment in listed companies. That is to say,the level of investor protection can inhibit the over-investment behavior of listed companies.5.Though further research we finds out that the improvement of investor protection can weak the positive relationship between two types of agent conflict and over-investment. Raising the level of investor protection can reduce agency costs, thereby inhibiting the over-investment of listed companies.We can see that, only work on the mechanism of internal governance structure is not enough to protect the minority shareholders' interests. The improment of external enviroment of listed companies is eagerly needed and a long term mechanism must be established, that the share holders investment can be protected.