The Analysis Of Government Intervention On The Behavior Of Small And Medium-Sized Listed Companies In China

Since the reform and opening-up, China’s small and medium-sizedenterprises(SMEs) have experienced a period of rapid development, the increasingnumber and growing operating strength made great contributions to the development ofregional economy and social stability, SMEs’ development has attracted increasinglyattention from all walks of life. There are many factors that can affect it in China, notonly for its own characteristics, but also for the financing method, ownership structure,assets, properties and product market, this paper will study the government interventionon the investment behavior of SMEs.The existing research on listed companies’ over-investment suggests, thecharacteristics of China’s economic system make government intervention on listedcompanies’ investment feasible and convenient, such intervention has a significantpositive correlation on China’s listed companies’ over-investment, especiallystate-owned listed companies. But the object of government intervention is usually theone that is controlled by the local governments, or contributed to the local economy,however, SMEs in China has a relatively small percentage, its scale and thedevelopment strength is far less than large listed company’s impact on local economyand society as a single enterprise. This paper will study the effect of governmentintervention on the investment behavior and M&A of SMEs in China, then makeempirical research from three parts.Firstly, after learning all the existing literature, this paper select listed companieson SME Board from2007to2011as samples. First, measure SMEs’ total investmentspending from the current year’s investment increase in fixed assets, depreciation andamortization, the increase in long-term investment, and additional working capital, thenanalysis SMEs’ investment characteristics from the four aspects. Using residuals metricmodel by Richardson (2006), explore the over-investment of SMEs, while comparedwith the existing conclusions obtained in government intervention on the listedcompanies’ investment behavior, at last, draw the conclusion that listed companies onSME Board have a more serious overinvestment.Secondly, this paper use descriptive statistical methods, obtain data from Marketindex report of Gang Fan (2011) and the World Bank report (2006), and measure thegovernment intervention by the nature of ownership, test the impact of governmentintervention on the over-investment of SMEs, find that company with stronggovernment intervention makes more over-investment. This paper makes Logisticregression using the nature of ownership as the proxy variable for governmentintervention, find that with respect to the non-government-controlled companies, there are greater probability of over-investment in companies with strong governmentintervention, which verifies the assumptions of the paper, the government havemotivation to promote SMEs to expand the scale of investment.In addition, as the economic and political participation, local governments haveability and motivation to intervene listed companies’ M&A. This paper chose56listedcompanies on SME Board that made M&A transactions in2009, made empirical test onM&A performance, study the impact of government intervention on M&A performance,come that state-owned enterprises’ M&A performance is significantly weaker than thenon-state-owned enterprises, and analyzed that SMEs with government interventionexperienced greater fluctuations in the two years after the merger, that means SMEswith government intervention in M&A can rapidly improve the performance in shortterm, but the long-term performance remains to be seen. This has much to do with somelocal governments due to improve short-term performance, they promote M&A withidentity of state-owned assets, only focus on the immediate contradictions andproblems.Finally, in order to reduce the existing serious overinvestment in listed SMEseffectively, improve the investment efficiency of listed companies in SME Board,tobetter promote economic development and improve the regional employment rate, thispaper suggests making reasonable position of the government to ensure the separationof government administration from enterprise management, to reduce interventions onenterprise development, at the same time, the government should be committed to thedevelopment of capital markets, reduce government intervention in M&A of listedcompanies. This paper argues that that the local government should considerdevelopment of the local in the longer term, do comprehensive clean-up to the offside inthe actual operation. The government should focus on cultivating a market intermediaryorganizations, reconstruct the bridge of the government and the market, develop thecapital markets, and improve the information disclosure system of M&A matters ofcorporate, to reduce the government’s intervention on listed companies’ M&A. Goodcorporate governance is a necessary condition for the rapid development of enterprises,SMEs should also strive to improve the internal governance structure, strengthen theconstruction of its own system, to better grow and develop in the support of thegovernment policy.