State-controlled And Excessive Investment Behavior Research

Enterprise investment efficiency is one of the hot topics of discussion on the field of corporate finance. Recent years, China’s total investment in fixed assets and investment growth rate is on the rise and there has been investment overheating. As the subject of Chinese enterprises, stated-controlled listed companies also showed high investment growth and mainly for excessive investment. Excessive investment puts a large amount of capital into the area of excessive production capacity, Leading to wasted resources and production factors. There are two main reasons:one reason is that the serious influence to the efficiency of investment of companies caused by highly concentrated equity in China,"one dominant holder", high weight of non-tradable shares, and the serious situation of insider control. The other reason is that the profit from state-controlled company stranded seriously, which provide large amount of money for management to invest excessively. In recent years, more and more researchers began to focus on and deeply research in the problem of efficiency of investment in China’s published companies. The studies showed that the government interference on state-controlled publishing companies, insiders controlling and the corporate governance mechanism under large shareholders are one of the key factors that can influence the efficiency and decision-making of investment. However, the conclusion obtained from those studies has some limitations. Because it did not deeply research on how state-controlled share holder influence the excessive investment of company. Therefore, it can not only enrich and improve the corporate investment theory, but also increase the investment efficiency, and promote China’s sustainable economic development by studying China’s state-controlled publishing companies" investment behavior from the perspective of ultimate controller, and finding the underlying reason of excessive investment and corresponding governance mechanism of state-controlled publishing companies.This thesis was based on the agency theory between shareholder-manager as well as Controlling shareholders and minority shareholders, asymmetric information theory, and the theory of free cash flow proxy; under the background of economic transformation of China, strictly selected the data of the year of2001-1010of12listed companies among Shanghai and Shenzhen stock markets to test that whether the over-investment of state controlled listed company was exist, as well as the relationship between State-owned holding and over-investment. Through relevance analysis and multiple regression analysis, this paper found that over-investment was a widespread phenomenon among stated-controlled listed companies, and the relationship between proportion of State-controlled shares and over-investment was an upside-down U-shape. which meant that when the proportion of state-controlled shares was less, the over-investment behavior was went to be dramatically strengthened with the increase of proportion of state-controlled shares. However, when the proportion of state-controlled shares reached a critical point, the over-investment behavior went to be weakened owing to the increase of proportion of state-controlled shares. In addition, this study also proved that the reducing of free cash flow could alleviate the over-investment behavior effectively, and the power balance of shareholders could take corresponding role in the management of weakening over-investment behavior as well.