Listed Companies Financial Governance Correlation With Over-investment

With the economic developing, enterprise as one of the essential elements in themarket, its investment decision-making is important factor to affect the growth. At thesame time, it is also one of the important issues of the modern theory of the firm, hasbeen focused by the practitioners and theorists. And the right investment decisions cannot only determine the success or failure of a business, but also to promote thedevelopment of an industry. The investment can be considered to be a key factor forbusiness growth. Inefficiency of investment decision-making directly related to businessrisk and profitability, and at a large extent, is still to affect the evaluation of the resultsof operations of the enterprise and industry development prospects of capital markets,ultimately relates to maximize enterprise value. On the bad behavior of theover-investment of enterprises, many experts and scholars at home and abroad hadstudied this behavior in deep-seated, and had achieved a lot research from a differentperspective. Nevertheless, this phenomenon in over-investment still exist in the listedcompanies, the problem is still not resolved. Therefore, it has very important practicalsignificance for studying corporate over-investment behavior and its restrictionmechanism. This paper is to regulate the standardized analysis and empirical researchabout excessive investment behavior of listed companies from the viewpoint of thefinancial governance. Through exploring the correlation between the two, the paper usean empirical research method to test that whether there is a significant correlationbetween financial governance and over-investment behavior of the manufacturing-listedcompanies.Firstly, the paper select the part of financial and economic data of themanufacturing-listed companies in2008-2011years of A-share of China for the studysample. And then using Richardson’s investment expectation model to measureover-investment, this paper finally decide the sample of positive residuals.Secondly, we selected the seven variables from the financial governance, and toanalyze the impact of over-investment behavior of listed companies, and put forwardthe hypothesis, build a regression model, and get the following results: there is asignificant negative correlation between Asset-liability ratio and over-investmentbehavior, so is float, the first major stockholder and the board size; the independentdirectors did not play a role in restricting excessive investment behavior; the number ofsupervisors did not pass the test of significance; there is a significant positive correlation between current ratio and over-investment behavior.Finally, basing on the empirical results obtained from regression model, we use themeasuring the level of management method of Liu Yebin and Wu Yingyu in domesticscholars, and then give each variable relative weights, plus the total calculated samplefinancial governance to get the company’s financial governance score of the samples.Then we build a regression model of financial governance score and excessiveinvestment behavior, and get the conclusion that the level of financial governance caneffectively suppress the bad behavior of the overinvestment.