Financing Constraints And Investment Efficiency In Business Groups

Under the macroeconomic performance, the company’s investment and financing is an important microscopic respect which could reflect its situation. But as not being in a sound economic system, the company’s investment and financing of our country is affected by many problems, such as policies, regulations and so on. Foreign researches have shown that, group operation could alleviate the financing constraints, and improve the benefit. But it also brings a lot of problems, such as over-investment, principal-agent conflicts and etc. Taking national situations into consideration, there are many differences on corporate development stage and the industry in which, which make it debatable that group operation is an effective means. So considering the feature of business groups in our country, it’s necessary to analyze the effect of group operation on financing constraints and investment efficiency.Firstly, based on listed manufacturing companies in our country, this paper distinguishes the enterprises financing constraints condition and sort enterprises into different groups. Using binary logistic regression model to build financing constraints index, which is quantitative methods to measure the financing constraints degree, calculate and compare the index of different groups. Then, determining the sample enterprises are under-investment or over-investment, decomposing the residual and computing investment efficiency by stochastic frontier analysis, comparing the investment efficiency of different groups. Finally, we analyze the relationship between financing constraints and investment efficiency by comparing regression coefficients of financing constraints to investment efficiency.The results indicate that, the financing constraints of group companies is weak than non-group companies. But it’s not obvious at the beginning, and is strengthened gradually along with group operation process. The company which has been part of a group all time is prone to excessive investment, comparing that the non-group company is insufficient investment. For the company which belonging to excessive investment, particularly at the initial stage of group operation process, it could lead to over-investment while constraints are being weakened. And for the company being insufficient investment, particularly the non-group company, its efficiency is improved more if financing constraints become weak.