An Empirical Research On Corporate Governance And Inefficient Investment Based On Life-Cycle

The study of corporate governance mechanisms’ effect on inefficient investmentbehavior can be divided into two categories: on one aspect, to study the test of corporategovernance mechanisms’ effect on inefficient investment behavior; on the other, manyscholars have their focus on whether the inefficient investment behavior can be reducedthrough improving information asymmetry and mitigating agency problems. Althoughthese studies have provided us a better understanding about corporate governancemechanisms’ effect on inefficient investment behavior, most of the tests are from thestatic level, not the dynamic level. So, it’s a great of significance to study corporategovernance mechanisms from the dynamic level.Almost all of the literature related corporate capital al-location efficiency tocorporate governance has been studied fromstatic perspective. Using the data of China’slisted firms during theperiod2005-2010, this paper conducted a research on corporatecapital allocation efficiency from dynamic perspective by designing a new index ofcorporate life-cycle, and examined the impact of corporate governance on corporateallocation efficiency.We establish a series of econometric model to empirical analysis and find:①Thefindings indicate that corporate allocation efficiency was evolved with corporate lifecycle,and the degree of over-investment is decreasing at first then increasing with corporatelifecycle, while the underinvestment is invariant. The corporate governance is alsochanging with corporate lifecycle, for the group of over-investment, the duality variablehas impact on over-investment at growth stage; while the independent director at maturitystage and large stock holder at decline exaggerate over-investment, but the other variableof corporate governance have no any impacts. For the group of underinvestment, managerholding stocks is helpful to cut down corporate underinvestment trough corporate lifecycle, while duality variable at growth stage and independent director at maturity stageexaggerate underinvestment, but the other variables of corporate governance have anyimpact.②These results inspire us to improving and adjusting the corporate governancefor corporate capital allocation efficiency with much more attention to the firm lifecyclefeatures, and then identified and made targeted improvement. Our paper contributes to theliterature in at least two ways: this paper proposes a new method to classify firm lifecyclestages by unifying the merits of classification methods of scoring on four indicators including sales growthrate, capital expenditure, earnings retained ratio and firm age, andof sales growth by industry under the practical situation of China’s listed firms.