| In the modern enterprise system, a notable feature is the separation of ownership and management rights, so it needs to establish the agency relationship in order to maintain the operation of the firms. However through the establishment of the agency relationship to manage the business and maximize shareholder’ wealth, it require the management must wholeheartedly work for the Shareholder. But in reality, this ideal state is difficult to achieve, corporate shareholders and management take different risks of business decision-making, and their pursuits are also different. Shareholders’ pursue is wealth maximization, but management’ pursue is under the constraint to maximize their individual utility functions, so, they have different utility functions, and there is a conflict between the different utility functions, This makes the management have an incentive to get personal gain at the expense of shareholders’interests. Under conditions of asymmetric information, corporate management has private information, coupled with the uncertainty in business, shareholders can not supervise management completely, and monitoring costs are also extremely expensive, this make it is possible for management to get private interests at the expense of shareholders’interests. This combination of "motive" and "possibility" will lead the business decisions deviating from maximizing enterprise value, So the principal-agent problem emerge.Principal-agent problem manifested in all aspects of business management, this article focuses on the principal-agent problem in the field of business investment, Investment is the most direct factor and the most fundamental factor to impact enterprise value。View of principal-agent theory applied to the investment to form a theory known as "maximize the firm size hypothesis", According to some of the existing research results, management have a strong incentive to construct a " Business empires ", because with the expansion of business scale, corporate management can control more resources、higher social reputation、greater job promotion space、more on-the-job consumption, etc. These are the main factors that constitute the utility function of management, we can believe the interests of management is closely related to the size of the business. Based on their own interests, management will choose a larger investment spending to expand the enterprise scale, they not only invested the project that NPV is positive, but also use the remaining funds to invest the project that NPV is negative in order to getting private profit。The project that NPV is negative will not fail to generate income to shareholders, even damage the interests of the shareholders. Shown is the starting point in business investment decisions is to maximize firm size, rather than to maximize the enterprise value.On the perspective of shareholders, in order to safeguard their own interests, they need to think about how to alleviate the principal-agent problem, lower agency costs, and maximize shareholder value. Through practical exploration and theoretical discussion, it was found to give the enterprise management a certain percentage of equity can alleviate the potential conflict of interest between shareholders and the business management, reduce agency costs, and enhance enterprise value. But at the same time, some scholars propose different views. Combination of the key point that the paper focuses on, this article focuses on managerial ownership whether inhibit the management’motivation to building a" Business empires", and when making investment decisions,it takes maximizing enterprise value as a starting point, rather than maximizing firm size.Based on the above analysis, the ultimate goal of this paper is the explicit managerial ownership whether can alleviate the potential conflicts of interest between management and shareholders in the field of business investment, inhibit the of the management’motivation to building a " Business empire", and take maximizing enterprise value as a starting point when making investment decisions. In order to achieve this goal, I did some work as follows: First、Clear the purpose of this study and the significance, build the framework of this study, clearly define some key concepts related to this article such as managerial ownership, corporate investment, enterprise value, etc.Second, to collect and collate existing research, including the impact of managerial ownership on corporate investment, the impact of business investment on enterprise value, and the impact of managerial ownership on corporate value. reviewing the relevant literature and finding the areas which are available。Third, I use the principal-agent theory and the Maximizing firm size hypothesis to analyze issues related。On this basis, put forward three assumptions of this study. Specifically: First, using principal-agent theory to analyze the agency relationship, the principal-agent problem and the principal-agent problem solution, using the Maximizing firm size hypothesis to analyze why the management want to maximize firm size.And further analysis of two distinct effects of managerial ownership in the corporate governance, including the interests of the convergence effect and the effect of trench defense。On the basis of theoretical analysis, combined with the actual situation of China’s listed companies, I put forward three hypotheses in this article.Fourth, in order to confirm the three hypotheses proposed in the paper, I design three models, collect data and analyze the result. According to statistical analysis results, I get three conclusions as follows:First, the relation between managerial ownership and corporate investment spending is expressed as significant negative correlation; second, the relation between Business investment spending and corporate value is expressed as an inverted "U" relationship; third, he relation between managerial ownership and corporate value is expressed as significant positive correlation. Combined with research findings and hypotheses, we can see the three hypotheses that proposed to be verified.Fifth, combined with the present theoretical analysis and empirical findings, at the end of this paper, I give three advises as follow:First, considering the fact that the management just have a little stake in domestic listed companies, Appropriate increase in the proportion of managerial ownership, it can further convergence the interests between management and outside shareholders. Second, companies should take some of ways to control the investment spending in order to maintain an appropriate scale of investment and the optimal firm size; Third, the managerial ownership can give positive impact on enterprise value significantly, but we should consider about some of the important factors that affect enterprise value direct, such as corporate investment spending, the performance of enterprises.Finally, at the end of the article, I put forward the lack of the research in this article. In the analysis of the affection of Managerial ownership on corporate investment decisions, I take all members of management as no difference in the individual, but there are some difference between them; This article just focuses on the proportion of managerial ownership, not the duration of managerial ownership. |
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