An Empirical Research On Government Intervention And Inefficient Investment

Inefficient investment has always been the concern in accounting and financial field’s research, generally including over-investment and under-investment. The existing theoretical or empirical researches from different angles at home and abroad are rich, such as cash-flow, agency conflicts, information asymmetry, behavioral finance, corporate governance, and found that the factors above all affected the inefficient investment behavior at different levels. Different from the external environment of western companies, Chinese enterprises have their own features in aspects of the political and institutional background, the market and the rule of law and supervision, and have shown a considerable number of "Chinese characteristics" that the role of government is closely related to development of enterprises and the governmental interventions affect investment behaviors. Thus we must take the intervention utility of authorities into account, when researching the inefficient investment of Chinese companies.However, the current studies on inefficient investment are conducted without concerning the Chinese enterprises’special institutional background and the important role of government in the process of business operations. Recent years the research of corporate inefficient investment behavior involved the context of our unique system began to appear, but whatever the quantities or the perspectives of our research are relatively inadequate and fragmented. There are only a small number of studies showed that government intervention led to the inefficiency of investments to a certain extent. A lot of studies on correlation between government intervention and inefficient investment stay in the theoretical specification, lacking empirical research seriously. Therefore researching the issue from the point of view of government intervention means a lot. Also, the analysis of motivation and capacity of government intervention to corporate investment behaviors can supplement and enrich the existing theoriesOn the basis of previous research achievement, this thesis is an empirical one about government intervention’s impact on the non-efficiency of Chinese enterprises’ investments, using696Chinese listed companies’financial data from2006to2011.There are five parts in this thesis. The first one is an introduction, beginning with the discourse of research background and practical and theoretical significance, then a review of current research results at home and abroad consisting of shareholders, creditors, managers, and asymmetric information, behavioral finance science and other variety of research point of view, followed the framework of the thesis, the main contents of all parts and the innovation and shortcomings of research.Secondly, four hypotheses to be tested are put forward on the basis of theoretical analysis about the relevant government intervention theory and business inefficiency investments. With the distinction between different types of enterprises and different degree of government intervention, the four hypotheses are about the correlation of intervention and over or inadequate investment.The third step is the design for research, including empirical model, variable selection, descriptions of the sample data source and screening principles and the descriptive statistics and correlation test for each variable in the model.The fourth part is the regression analysis for the above assumptions which are to be verified. The model in Richardson (2006) is used first to measure the degree of over-investment and insufficient investment. Then, do the regression analysis with the residuals results above to analysis the relationship between the investment behavior of different enterprises and local government’s intervention, comparing the degree of influence for different kinds of enterprises. Certainly there’s a robustness test is to verify the results at last. Finally, summarize research consequence and analyze the causes. According to the conclusions, the market and the current system state of the environment in China, some policy suggestions are proposed.It is discovered that governmental intervention is related to the overinvestment positively and underinvestment negatively. The local government intervention resulted from the policy burden and officials’ promotion objectives lead to the inefficient investments of enterprises. The intervention exacerbates the corporations’excessive investment with free cash flow, and alleviates the underinvestment with financing constraints.In addition, different types of enterprises are influenced in different extent of intervention, and differ at the extents of over and underinvestment. And state-owned enterprises are naturally more affected by governments, having more inefficient investments compared to private enterprises. Local state-owned enterprises under the control of local governments receive more interventions than the central enterprises, and the extent of inefficiency should be stronger, however, the results of empirical test are not fully apparent to this assumption. Finally, among the private and other types of enterprises, the greater impact on the local economy, especially on the GDP, the larger impact corporations receive.The innovation of this thesis is mainly reflected in the following areas:First, this research explores how the government affects the enterprises’investment behaviors in our special institutional background, unlike the tradition of theoretical research in western. Then our research combine overinvestment with inadequate, differs from others only focus on the excessive one. We also analyze the overall situation of over investment and inadequate, using empirical data from Chinese listed companies. According to the ultimate type of controller, the research distinguishes state-owned enterprises and private ones, not ignoring the impact of government intervention to private enterprise which expands the scope of the study. Finally, in the study of the correlation between local government and the inefficiency of private companies’ investment, we prepare a dummy variable to measure the enterprises economic influence, and a cross-multiplication to the relationship of intervention and the inefficient investment which supplement the previous model.