Ontrol Effect Of Bank Loans To Company’s Over-investment

In recent years, China’s economy has maintained rapid growth. Investmentincreased with the economic development and also promoted economic development.However, due to the limited resources, demand and other restricted condition, with therapid growth of investment, a number of trades have "investment overheating"phenomenon. Blind investment can not get the optimal allocation of resources, a lot ofcapital sunk in the areas with excess capacity and deteriorating profitability. Due to thehighly concentrated ownership structure in Chinese listed company, conflict of interestbetween shareholders and managers has transformed to the conflict of interest betweenthe controlling shareholder and minority shareholders. When the dominant State-ownedshares have the homogeneity with state-owned commercial Banks and The bank loansare the main source of debt financing, How to control excessive investment behavior,coordinate interests among stakeholders, maximize enterprise value become the focus inacademic research. However, the current study about liabilities and over-investmentignored the changes in the relationship between banks and enterprises, the difference infinancial development. This paper will combinate the unique institutional environment,highly concentrated ownership structure, bank-share holding and the regional level offinancial development to the control effect of bank loans to overinvestment based onlisted companies.This paper conducts a theoretical and empirical study based on listed companies ofA-share market from2003to2007. Explore the control effect of bank loans tooverinvestment under the influence of controlling shareholder, bank-share holding,regional financial development. Finally, based on the conclusions, this paper putforward the proposal to manage the over-investment and maximize the enterprise value.The empirical results show that bank loans have a significant control effect onover-investment and short-term loans have a better influence. But this control actionaffected by the nature of equity and the largest shareholding ratio. The control effect ofbank loans, especially short-term loans is stronger with the higher proportion of thelargest shareholder in non-state-owned listed companies. This control effect isweakening in state-owned listed companies. When the relationship between bank andcompany change, the control effect of bank loans is stronger in bank-share holdingcompanies than non bank-share holding companies. Further research shows that bank shares stronger the control effect of short-term loans and long-term loans innon-state-owned listed companies, but only stronger the control effect of long-termloans in state-owned listed companies. The control effect of bank loans strengthen withthe regional financial development. The control effect of short-term bank loansstrengthened with the regional financial development is more significant innon-state-owned listed companies.