A Study On The Market’s Attitude Towards Non-Financial Listed Companies’ Financial Investment

The unexpected and thrilling financial crisis in recent years infers thehigh risk of financial asset and the indispensable attention to riskmanagement as well. But it is dramatically confusing that recently listedcompanies in China increasingly indulge themselves in financialinvestment including the finance-management programs sold by banks, avariety of futures and bonds and security investing. However, the risk infinancial asset makes financial asset unsuitable to be a vital part of listedcompanies’ asset. Therefore, this paper focuses on the attitude of theoutside market toward non-financial listed companies’ financial investment.Firstly the paper collects the researches on corporate investingbehavior and financial asset measurements. The existing researchesconcentrate on the factors, rationality and motives of companies’ investingbehavior mainly pointing to real economy, the arguments of fair value andamortized cost and the effect information disclosure has on companies’performance. There hardly has been a pertinent study on the attitude of the outside market toward non-financial listed companies’ financial investmentabout which this paper cares. Principal-agent theory, behavioral financemerely consisting of management’s overconfidence and herding behavior,and signaling theory are treated as the theoretical preparations whichsupport companies’ investing motives.The empirical research and the case study are the keys to this paper.Based on a balance sample of88listed companies’ data ranged from2008to2010and combined with several appropriate controlled variables, theempirical model analyzes the relationship between the dependent variable“the natural logarithm of price/book value” which stands for the attitude ofoutside market and the independent variable “the financial investment size”defined by the ratio of financial investment amount and total asset. Theregression’s result proclaims the negative relationship between theprice/book value and financial investment size which means the larger thecompany’s financial investment size, the lower the outside market’sevaluation of the company. In the case study of Youngor which is criticizedfor its exceeding enthusiasm to financial investment, the analysis of its cumulative abnormal return (CAR) and price/book value sides with theempirical research. Given Youngor’s data ranged from2007to2011, thefinancial volatility stemming from financial asset, this volatility’s effect onYoungor’s performance and the imperfection of financial investment’sinformation disclosure are considered to be the factors which lead to theoutside market’s negative attitude toward financial investment.Finally, the paper proposes several suggestions to regulatenon-financial listed companies’ financial investment: the supervisor shouldmake sure whether or not the non-financial listed companies areprofessionally qualified to invest financial asset and then accordinglycontrol the financial investment’s size respectively with a further disclosure;the management should attach importance to the process of investingdecision and risk management.