Changes Of Investment Performance In The Privatization Of State-owned Companies

In recent years, the privatization of state-owned enterprises has been one of the key issues not only in the theory but also in the practice fields. Whether the performance of the privatizatiled enterprise could get improved and the target of the government could get achieved is directly related to implement of the great decision of privatization. Although many scholars made a lot of efforts on this question, duing to the differences of the indicators used, the selection deviation of the samples, the differences of the test method and many other factors, ultimately led to an unamimous conclusion. Based on the different structure of the enterprise property, some scholars found that the state-owned enterprises usually have low efficience compared with the private enterprises. While using the similar method, a few scholars come to a different conclusion.However, their study face the same question that there are not enough samples usually, thus they cannot on behalf of the privatizatied state-owned enterprises on the whole. In view of these situation mentioned previously, this paper select the privatizatied state-owned enterprises in the period of2003-2011, and set a series of dummy variables to mark whether the enterprises privatizatied or not, at last288stock samples were obtained through a rigorous screening process. By this way, we overcome the drawbacks of the lackness of the sample.In fact, just by looking at the financial indicators before and after the privatization of the state-owned enterprises, and drawing the conclusion whether the privatization of state-owned enterprises is valid can inevitably be biased. Whether the performance of the privatizatiled enterprise could get improved should be up to whether the actual behaviors of the company have get beneficial changes. For example, in the state-owned enterprises, the managers usually have a high degree of investment freedom, in the interests of themselves (such as access to promotion, higher social status and so on), they tend to invest in some project with the little net present value or even negative, thus resulting in excessive investment. while after privatization, corporate governance efficiency get improved, and in the interests of themselves in order to avoid the risk of unemployment, the mangers will be more cautious, only carry out the project with large positive net present value. Clearly, these changes in investment behavior will inevitably lead to changes in corporate performance. Therefore, we focused on building the relationship between the representative of the actual behavior of investment spending and the market value of the stock gains, trying to confirm whether the performance of the company after the privatization of state-owned enterprises improved.It is generally believed that there is an negative relationship between investment expenditures and stock returns. Berk, Green and Nail (1999) founded an optimal investment model, which hold the opinion that the company’s value is constituted by existing assets and investment options, and the systematic risk of the investment options is usually greater than the existing assets. If the investment options are carried out, the systemic risk of the company’s total assets will get dropped, thereby the average returns of the stock get reduced. Sheridan Titman, KC John Wei and Feixue Xie (2004), Cristopher W.Anderson and Luis Garcia-Feijo (2006) empirical researches also support the above theory. This paper is just focusing on the relationship between investment expenditures and stock returns, and studying how the corporate governance impacts this relationship.In this paper, we also find that there is an negative relationship between investment expenditures and stock returns in China’s enterprises in the use of the FM method multiple linear regression. Moreover, when the sample companies is in the state-owned holding period, this negative relationship is more significant. While the sample companies get privatizatied, this negative relationship is no longer significant. This relationship is still valid when a series of control variables such as the size of the company, the proportion of outstanding shares get included. In addition, when taking into account the impaction of the debt ratio and free cash flows, we find that in the state-owned holding period, high cash flow will strengthen the negative relationship between investment expenditures and stock returns significantly, while liability ratio do not change the significantion of the negative relationship between investment expenditures and stock returns. When companies get privatizatied, low cash flow and high debt ratio will weaken the negative relationship between investment expenditures and stock returns, thus the negative relationship between investment expenditures and stock returns will be no longer significant.To some extent, the conclusions of this study have positive meanings for the large-scale privatization practice in China. To improve the operational efficiency of enterprises, efforts should be taken in agency problems leaded by property rights. In the deepen reform of state-owned enterprises, the government should attach greater importance to corporate governance efficiency, to promote the establishment of more comprehensive and effective internal incentive and restraint mechanisms, making the business objectives of the company’s managers target consistent with the owners of the company, thus reducing agency costs effectively, and achieving the purpose of company performance improving ultimately.