A Study On Relativity Of The Strategy Committee And Non-Efficiency Investment Of China’s Listed Companies

The investment decision is one of the three most important decisions in the field of financial management, which not only affects the growth of the company’s future cash flow and the creation of company value, but also the macroeconomic fluctuation. Because of the political, economic, technology and many other factors, the investment behaviors of the listed companies are likely to deviate from the goal of company value maximization, resulting in "Non-efficiency investment". Non-efficiency investment includes over-investment and under-investment. Over-investment abuses the funds and invests blindly in a hot industry resulting in a large number of capital precipitations, the waste of masses of resources and reduction of the capital-output ratio; Under-investment has a large number of idle funds, or cannot get reasonable financing channels due to the financial constraints, then has to give up good opportunities and grows slowly. Non-efficiency investment lowers the capital configuration, damages the interests of the owners and hinders the sustainable and long-term development of the capital markets.Effective investment decision depends on effective corporate governance, namely the effective balance system between the creditors, managers and shareholders. Board is the core of the corporate governance, whose operation is directly related to the investment behaviors and the long-term development of enterprises. Especially Strategy Committee is one of the professional committee of Board, whose main duty is to make investigations and recommendations to the company’s long-term development strategies and major decisions. The committee system is also an important measure to perfect the corporate governance structure.This paper selects the manufacturing industry from2007to2009in Shanghai and Shenzhen stock exchanges as examples, to research into Strategy Committee and the inefficient investment behaviors, and analyzes the effects of the setting situation and characteristics of Strategy Committee on the non-efficiency investment behaviors. Firstly, the paper introduces the background, significance, framework, the possible innovation and shortage of the study. Secondly, the paper reviews literatures on inefficient investment behaviors from the view of the cash flow, principal agent, asymmetric information, capital structure, corporate governance and other theories. The paper also reviews the domestic and foreign literatures on the Strategy Committee, then proposes hypothesis. Lastly, the paper establishes a investment expectation empirical model to measure the degree of non-efficiency investments of listed companies, then makes empirical researches on the effects of the setting situation on the inefficient investment behaviors with related data of listed companies in2008, and further studies how the committee’s characters work on the investment behaviors.The results of this study as follows. The majority of the listed manufacturing companies in China take place the Under-investments, and the proportions continue to grow up, the difference between listed companies which have Over-investment behaviors is much lager. The ratio of the listed companies which have established Strategy Committee continues to improve, and the non-efficiency investment levels of the companies which have set up the committee are lower, which shows that the committee can perform its functions well, controls and suppress acts of non-efficiency investments effectively. To the view of structural feathers of Strategy Committee, increasing its size and the ratio of independent directors appropriately, and making independent directors in charge of the Committee, can make the supervision and control of the investment behaviors in listed companies much more effectively. To the view of behavior feathers of the Strategy Committee measuring by Strategy Committee meeting, the empirical study finds that frequency of the meeting has an evidently negative correlation with the inefficient investment behaviors. The more the committee holds meetings, the more opportunities for communications between members and the deeper discussion of the investment projects. It’s much more likely to discover the inefficient investment behaviors, and take supervisions and controls over it. To the view of the quality characteristics of Strategy Committee members, the average age of the members, the proportion of the female members and the educational background of Strategy Committee have significant negative correlations with the inefficient investment behaviors. Appoint older appropriately ages, more experienced members, improve the proportion of the female members, hire more members with higher educational background and more sufficient professional knowledge, to make Strategy Committee more supervision and control over the non-efficient investment behaviors of listed companies.