Empirical Research Of The Over-Investment Of Real Estate Enterprises In China

Since Jensen (1986) proposed free cash flow hypothesis, the over-investment problem for enterprises to become the hotspot of academia. The scholars based entrusted agents, asymmetric information, financing constraints perspective to research the enterprises’over-investment problem, but from the perspective of macroeconomic factors research is less. And the results indicate that free cash flow is the main reason for the cause of over-investment. Rapid real estate development in China and with many other issues, now real estate has become the academic research focus. Therefore, this paper summarizes the results of previous studies, then choice listed real estate companies in2007-2010data for the study sample, from macro factors affecting the real estate over-investment perspective and use expected investment model which proposed by Richardson (2006) to test the existence of over-investment in the real estate listed companies in China.Then we explore the factors such as interest rates, real estate prices how to the impact the over-investment in the real estate business, as well as the real estate business economic impact by over-investment. The research is divided into four main parts.The first part is the introduction.We introduces the importance of the real estate industry in China’s economic development and the characteristics of the real estate investment and over-investment in real estate phenomenon. The second part is the research overview.We summarizes the theoretical perspectives and research model in the previous studies. The third part is the empirical part.First we test the existence of over-investment of the real estate business, and then research the impact of over-investment factors and internal influence caused by over-investment in the enterprise.The fourth part is the conclusion. We summarizes the results of this study and basis the theoretical of previous studies.After we empirical analysis, the study found that China’s real estate listed companies there are more serious over-investment behavior, which exist the over-investment behavior of the sample corporate is53.7%of the total number of samples, and the number of over-investment has increased year by year. Then we further study the Influencing factors of over-investment. The results found that the free cash flow is really important factors that lead to over-investment, free cash flow is more abundant, the greater probability of occurrence of real estate enterprises over-investment behavior. In addition, the rise in house prices has also significantly increased the probability of over-investment,but this effect existences of lags; rising interest rates can be suppressed the probability of occurrence of excessive investment to some extent. Therefore; over-investment behavior caused serious economic impact to real estate enterprises, significantly reduced the profitability and solvency.