Corporate Governance Structure Influences On The Irrational Capital Expenditure

Capital expenditure is investment that adapt to the enterprise long-termdevelopment, usually it involves large sums of corporate money and the duration ofinfluence is long. The capital investment decision whether reasonable will influencethe management status and profitability of enterprise in the future. Due to the lessdeveloped domestic capital market, imperfect institutional environment, as well asone of the behavioral finance theory——Prospect Theory, a decision-making modelunder an uncertainty circumstance, capital expenditure will be irrational, thedecision-maker bounded rationality can lead to irrational investment decision.Without mature corporate governance mechanism is the important reason for companyirrational investment behavior, perfect the corporate governance structure can benigninfluence to capital expenditure.Based on the enterprises pay cash to buy fixed assets, intangible assets and otherlong-term assets as capital expenditure, from the company organizational le vel, regardprospect theory and corporate governance theory as the theoretical basis，inspectcompany decision-makers attitudes towards Return on Invested Capital, explorewhether individual decisions on the irrational aspects will extend to the company’sdecision-making behavior by empirical research method and whether the corporategovernance structure can affect corporate investment behavior.First, this article refer to Certainty Effect and Reference point of prospecttheory， put forward assumption that company capital expenditure are irrational.Proposed company internal governance factors can be moderators to irrationalbehavior, curb irrational investment behavior. Research results show that whencompany facing with relative loss they are prone to irrational investment, and want toput more capital expenditure to change their backward situation，and make up for thepolicy makers sense of loss. Research also found that the corporate internalgovernance mechanism can restrain the irrational behavior. Combined with the resultsof the study, this paper puts forward suggestions to consummate the corporate internalgovernance structure, control irrational capital expenditure behavior.