A Study On Corporate Governance, Cash Dividends And Over-investment Behavior

With the continuous development of economic globalization, China’s economykeeps increasing steadily. Investment as one of troika for pulling economic growth playsa key role on the healthy development of the economy. But in recent years, due to theinfluence of various factors, most of enterprises have a certain tendency ofover-investment, the management put the disposable free cash in not ideal andunfamiliar projects, which cause resource waste, detract value, and even lead the waytoward the ultimate corporate bankruptcy. Thus, how to curb excessive investmentbehavior becomes a serious problem. Therefore, this paper starts from corporategovernance, and combines cash dividends which can reduce the free cash flow, toexamine the relationship between corporate governance, cash dividends andover-investment in order to provide recommendations to curb over-investment behavior.This paper takes A-share manufacturing companies listed on Shanghai andShenzhen exchange on the Main Board from2007to2012, before December31,2005as samples and combines the study of Vogt (1994) and Richardson (2006), to constructthe measurement model of over-investment. Through the empirical study, we find thatChina’s manufacturing listed companies do present over-investment behavior. On thisbasis, the paper gradually analyzes the relationship between corporate governance andover-investment, between cash dividends and over-investment, between the whole ofcorporate governance and cash dividends and over-investment, to explore the impact ofcorporate governance and cash dividends on and over-investment. The results show thatas follows: The ownership concentration and over-investment level shows an inverted"U" shaped relationship; Equity restriction has a negative impact on over-investment,but not significantly; Executives incentive can ease the conflict of management andshareholders, basically dampen over-investment behavior; Independent directors can’tease over-investment behavior; There is a significantly positive correlation between theactivities of the board and over-investment; The overall level of debt has a significantly negative impact on the over-investment, while long-term liabilities to some extentexacerbate the level of over-investment; In the absence of other factors, cash dividendshave a negative effect on excessive investment level, but not significantly; Whencorporate governance, cash dividends factors as a whole acting on the over-investment,payment of cash dividends can significantly affect the level of over-investment.