Study On The Influence Of Stock Mispricing On Investment Efficiency

Company’s investment decision involving both financing and fund deployment efficiency, is the main driving force for company’s future growth and enterprise value enhancement. If the company cannot invest efficiently, it will affect the level of business risk, profitability and market expectations to the company’s future operating performance and development prospects. Therefore, the study of efficiency of company’s investment is the most essential issues in the field of corporate finance.The recent global financial crisis has prompted the academic and practical sessions focusing on the channels through which asset price fluctuations influences on the real economy, especially the mechanism that the capital market (or stock price changes) acting on the company’s investment behavior. Because of the presence of imperfect capital markets, in the long-term, stock price deviates from its true value, which will lead mismatch in the company resource, causing over-investment or under-investment, resulting in inefficient investment, ultimately affecting the company’s value.Stock mispricing can affect the company’s investment decision-making through four channels: the active informant hypothesis, the financing hypothesis, the catering theory under the stock market pressure hypothesis and liquidity hypothesis. The active informant hypothesis believes that, if the manager cannot isolate the investor sentiment part from stock price, the investment decision will be distorted by the false information in the market. The financing hypothesis is that when stock is mispriced by the impect of investor sentiment, company tend to issue new equity to reduce the cost of financing new projects when its stock price is overvalued. The catering theory suggests that if the management rotation is related to the company’s share price, which will motivate the manager to adjust investment decisions to meet the market sentiment. The impact of stock liquidity on the company investment efficiency is even more complex.In this paper, we build our four hypotheses, use quarterly reports of listed companies in Shanghai and Shenzhen A-share market form2003to2012as samples, and build several multiple regression model for empirical analysis, taking the endogenousness and robustness of the model into account.Empirical results indicate that:(1) stock mispricing will significantly inflate company’s over-investment.(2) Among the four influence channels, only the active informant channel is statistically significant, while the financing channel, catering channel and liquidity channel are not significant. Possible explanation is that: considering the high degree of inefficiency of Chinese A-share market, the listed company’s investment decision is likely to contain the false information in the stock price, so the investment decision is distorted by the investor sentiment.(3) Divided the sample into the stock market rising stage and non-rising stage, results indicate that, in addition to the impact of information sources being still significant, the catering channel and liquidity channel begin to play a role. The conclusion suggest that the improvement in information content of stock market and the stability of stock market is important for the investment of Chinese listed companies.