State-owned Enterprises Corporate Governance Mechanism And Investment Efficiency

Since more than30years’reform and opening up, China has kept sustained and rapid economic growth. State-owned enterprises occupy an important position in national economy and maintaining state power is essential to China’s macroeconomic. Capital investment is the main source of China’s steady economic growth. To across the middle-income trap, it’s urgent to convert the mechanism of economic growth driven by investment to the efficiency of investment. Micro-level of investment efficiency is the key to economic output.At present, China’s state-owned enterprise’s profitability, value creation and capital value performance are not satisfying. High quality management of free cash flow is important to enterprise value promotion. Good corporate governance mechanism is the key to reasonable use of free cash flow.This article relying on investment cash flow sensitivity study, free cash flow theory, analyzed free cash flow using and corporate governance mechanism, free cash flow and investment efficiency, using2007-2011data of Shanghai and Shenzhen a-share listed state-owned enterprises in China—632state-owned enterprises samples,2528samples observed value in CSMAR database and Wind database. This article studied the2008-2011internal and external governance mechanism of the influence of the free cash flow of investment efficiency of state-owned enterprises, and get the following conclusions:(1) The analysis of the use of free cash flow of state-owned enterprises shows that rich free cash flow can lead to excessive investment, securities market investment consumes most free cash flow, returning to investors is very less. A shortage of cash flow is more likely to lead to underinvestment, raising from investors is the main channel. State-owned enterprises like raising money from investors but are reluctant to pay back and are keen on securities market investment;(2)902samples demonstrate excessive investment behavior,1626samples demonstrate investment insufficiency. Relative to excessive investment, inadequate investment situation can be summarized as " bigger range, less degree";(3)the increase of free cash flow exacerbate excess investment,also can alleviate the underinvestment, proving the existence of "inefficiency investments——free cash flow sensitivity";(4) relative to the central state-owned enterprises, the extent of overinvestment and underinvestment of local government are more serious;(5) internal governance mechanism, the increase of the proportion of the first largest shareholder, a much lager board size will intensify the inefficient investment of free cash flow of the state-owned enterprise. Management equity can reduce excessive investment of free cash flow, but because management equity will have more discretion on investment decisions, this may contribute to the lack of investment. Active shareholder shareholding can inhibit efficient investment of free cash flow;(6) the external governance mechanism, perfecting the law and investor protection system and improve product market competition could reduce efficient investment of free cash flow of state-owned enterprise.This paper innovation points can be summarized as follows:(1) most of the studies on free cash flow and investment efficiency is about excessive investment. Based on samples of state-owned enterprises, this paper studied both excessive investment and insufficient investment. Most of investment cash flow sensitivity studies are not directly based on the efficiency of investment, which is aimed at the investment-cash flow sensitivity study. This paper has carried on the deep step of the research, and confirmed that "efficiency investments-free cash flow sensitivity do exist in state-owned enterprises.(2) by analyzing the application of the free cash flow in the state-owned enterprises, find out its application problems in state-owned enterprises and then studied how internal and external governance mechanism affects efficiency of free cash flow investment, which makes this paper more in-depth and more targeted.Finally based on empirical research and normative research, this paper put forward the following policy recommendations:Strengthen the management of free cash flow; Optimize equity structure; Strengthen the supervision role of the board of directors; Strengthen the law and investor protection system; Create a fair market competition environment.