Study Of Financial Risk Based On Perspective Of Excessive Investment

Since China joined the world trade organization, the socialistmarket economic system is constantly perfecting. Along with the nationalmacroeconomic regulation and policy adjustment, there is a lot of money thrown intothe economy construction. And it has improved quick development of economy in ourcountry. The global financial crisis affects the economic development in the world,but all kinds of investment to the enterprise are still high. So it is a problem ofoverinvestment. As the global economy has not fully recovered yet, overinvestmentissues need to be paid more attention. Based on the perspective of excessiveinvestment, this paper analyses overinvestment makes the influence to the financialrisk of enterprises. Financial risk may result in a shortage of raw materials ofenterprises and down the net assets returns ratios of enterprises. Even it can cause therupture of capital chain and so on. As the pillar industry in national economy, the steelindustry plays an irreplaceable role in the economic construction. From the upstreamof the mining of iron ore to the downstream of the development of real estate,transportation, machinery manufacturing industry and so on, it has a vital role toChina’s economic growth. So the iron and steel listed companies as an example, theresearch that analyzes the influence of excessive investment on financial risk not onlyhas a positive early warning role on the financial risk of iron and steel industry, butalso on the all of the development of China’s enterprises.At first, this paper introduces the relevant theories about excessive investmentand financial risk and domestic and international research overview. Then, it analyzesthe reasons of excessive investment in china and the influence factors of financial risk.It considers the financial data of Chinese iron and steel listed companies in2008-2011years as sample data and uses the descriptive research method, literature research,analogical reasoning method, mathematical model method and so on to demonstratethe investment phenomenon exists in steel enterprises in China and excessiveinvestment affects the financial risk of the enterprises. Finally this paper makes aconclusion of the whole text and comes up with the direction of the study next.The research work in this paper mainly focuses on the following aspects. Theinvestment model of steel listed companies is set up, and the residual value of themodel indicates excessive investment. Furthermore, it demonstrates the investmentphenomenon exists in steel enterprises of China. The new financial risk model, withcross term between excessive investment and X5, confirms that excessive investmentis one of the influence factors of financial risk.