Research On The Influence Of Ultimate Controlling Shareholders On The Overinvestment Of China’s Listed Companies

In recent years, with the rapid development of China’s capital markets, phenomenon of over-investment has taken place in many industries. The problem has also become a hotspot of academic research in China.This article first confirmed whether free cash flow and over investment have sensitivity. Under our special equity background, this paper then added the three ultimate nature of equity into the over-investment research.Based on the principal-agent theory, credit financing constraint theory and ultimate shareholding structure theory, this paper uses487listed companies of manufacturing industry to testify the sensitivity between over-investment and free cash flow. Then another model is set to testify the four hypothesizes:Chinese listed companies’investment is sensitive to cash flow; companies controlled by governments are more likely to over investment compared with these controlled by private property; companies controlled by central governments are more likely to over investment compared with these controlled by local governments; The greater the degree of separation of ownership, the more seriously companies will over invest.The paper is made up of six chapters.The first chapter talks something about the research background, research framework and its contributions.The second chapter is the review of relevant literature, mainly consists of two parts. One discusses the ultimate nature of equity effects of over-investment and the shortcomings of existing literature. The other is about how sensitive the free cash flow and over investment be.The third part is the theoretical analysis section, including five parts. First is the identification of controlling shareholder, the identification of ultimate nature of controlling shareholder, the identification of over-investment. Then comes the theories of principal-agent theory, credit financing constraint theory and ultimate shareholding structure theory are also discussed. Next is the corporation classification according to ultimate shareholders. The fourth and fifth part is theoretical analysis of the over-investment of different ultimate equity based on the principal-agent theory and credit rationing theory.The third chapter is status quo analysis about the ultimate equity and over-investment of listed companies.The forth chapter is the empirical part of the article, including the set of hypotheses, variable definition and research model, sample selection and data sources, as well as the empirical results of the model (1) and model (2) analysis.The last chapter is of the research findings, policy recommendations and inadequacies.This paper has three contributions:First, it’s the first time credit rationing theory be introduced to do research on over-investment. Over the past study, the majority of article is based on the theory of asymmetric information, principal-agent theory, investment theory, theoretical analysisSecond, despite of the fact that some articles have discussed how ultimate controlling shareholder affects over-investment, these discussions are interspersed in the article. In this article, we will discuss the subject in a systematic and comprehensive way.Third, unlike others, this paper not only gives suggestions to the government, but also to the shareholders.Besides of above, in view of time and capacity constraints, this paper has defects, such as the model is not so accurate and corporation classification problems, which need to be further explored and improved in the future.