Government Control, Managerial Power And Investment Efficiency

As an important force to promote the growth of the economy, investment has made asignificant contribution to the rapid development of our country economy. However, our countryis still in the economy transition period, non-efficient investment is very common. The efficiencyof investment not only affects listed companies capital efficiency, but also effects the healthydevelopment of the economy in our country. Non-efficiency investment has become one of thefocuses of the research of academics and practitioners. With more and more attention to thereformation of state-owned enterprises, decentralization of power and transfer of profits in ourcountry is increasing in order to make the enterprises have autonomy and better development,leading the managerial power increasing. Because of the many companies that exist within largermanagerial power, the management may use the power for private benefits, thus affecting theefficiency of investment and enterprise value. Managerial power plays different roles between thelisted companies controlled by the central government and those by the local government. Basedon this, this paper aims at studying the relationship among government control, managerial powerand investment efficiency.This paper reviews scholars in the managerial power and enterprise investment efficiency inthe related research achievements. Using principal-agent theory and manager theory, combinedwith simple model analysis, it discuss the relationship among government control, managerialpower and investment efficiency. Based on this, this paper will conduct the research using themethod of normative research and empirical analysis. This thesis analyses data of listed companiesfrom2007to2011to empirically test the relationship among government control, managerialpower and investment efficiency.The results indicate that managerial power shows a significant positive relationship toover-investment. The managerial power makes no difference to the under-investment. Havingincluded controlling shareholder power within our paper, we find that managerial power impactsmore positively on over-investment with statistical significance in companies with diversifiedownership. It has no difference to the investment efficiency in companies with concentratedownership. In the listed companies controlled by the central government, we find positivecorrelation between managerial power and under-investment while in the listed companiescontrolled by the local government, the managerial power shows positive relationship toover-investment.Based on the empirical study, the paper proposes the following policy recommendations: first,strengthen the supervision and restriction of the managerial power, improve the independence ofthe board of directors; second, give the management equity incentive; third, establish effectivemanagers market; fourth, regulators should make different regulatory policy in consideration ofmanagement and major shareholders; fifth, further deepen the reform of state-owned enterprises,give different supervision and arrangement between the listed companies controlled by the localgovernment and the listed companies controlled by the central government.