Study On The Influence Of Management Entrenchment On Company’s Investemnt Behavior And It’s Economic Consequeses

As a result of the existence of information asymmetry and incomplete contract, theconflicts of interest between the manager of personal interest maximization and theshareholders will lead to management entrenchment, like the manager’s position defensebehavior. Company’s investment decision is main motivation of its growth and the foundationfor the growth of its future cash flow, and it’s the starting point of corporate financialdecisions, so it’s very critical. Research has shown that management entrenchment is one ofthe important factors affecting enterprise investment behavior. This paper is trying to studyinvestment behavior of Chinese listed companies and its economic consequences, namely theenterprise performance here, from the perspective of management entrenchment, andinvestigate conduction relationship between management entrenchment, inefficientinvestment and the enterprise performance.This paper at first sorts out literature related to this study field and takes it as thefoundation of consequent empirical analysis. The paper selects relevant data of listedcompanies from the real estate industry in China as research samples, and makes use ofmultiple linear regression and Three-step Test of Mediation Effect to study conductionrelationship between management entrenchment, inefficient investment and the enterpriseperformance. In empirical research, the paper selects six variables of manger’s age, tenure,education background, work experience, whether manager also taking the position ofpresident of the board, and manager’s shareholdings to measure the degree of managers’entrenchment, and thus build management entrenchment index. The study founds that thehigher degree of management entrenchment, the more obvious of inefficiency of investment,and the conduction relationship is acceptable between management entrenchment, inefficientinvestment and the enterprise performance, namely that the management entrenchment affectscorporate investment behavior which then affects the performance of the enterprise. Based onthe research conclusions, the paper suggests that the supervision on the managers should bestrengthened, the manager market should be bettered, managers’ incentive problem should be reflected, and the inside environment of administrating managers should be perfected.On the base of China’s special institution and background, the paper analyzes the law ofhow the management entrenchment affecting corporate investment and its performance. It, tosome degree, is a beneficial complement of study on the enterprise investment behavior andthe economic consequences. It also provides evidence for the action of supervising andrestricting manager’s self-interest behavior, reducing principal-agent cost, deleveraginginefficiency of investment and thus improving the company’s performance on gaining profit.