Research On Over-investment Behavior In Chinese State-controlled Listed Companies Based On Board Characteristics

As one of the most important financial decision, investment decision directly influences thepresent market value and the future development of a listed company. The separation ofcompany ownership and management always leads to agent problem. Along with the problem ofasymmertric information in Chinese capital market which is still at a premature stage, Chinesestate-controlled listed companies usually face the problem of the vacancy of controllingshareholder, plenty of free cash flow and too much government intervention, which leads toserious over-investment in state-controlled listed companies that causes low efficiency ofresource utilization and the lost of stated-owned assets. Therefore, improve theinvestment efficiency and reduce over-investment of state-controlled listed companies in order toprevent the drain of stated-own assets is undoubtedly of considerable realistic significance.Wonderful corporate governance will be helpful to solve the non-efficient investment problem,which is caused by information asymmetry and agent problem. The board system arrangement isone of the most important corporate governance mechanism. Whether the rational design and theeffective operations of the board can effectively solve the problem of over-investment instate-controlled listed companies is the topic of this paper.Referring to the model put forward by Richardson in2006, the non-efficient investment ismeasured by the difference between the real investment and the predicted investment. In thispaper, the board characteristics are divided into four classes, including independence, diligence,motivation and capability. And each kind of characteristic is described by two indicators. Thepaper uses the2009-2012A-share state-controlled listed companies as sample to examine therelationship between board of directors and over-investment in state-controlled listed companies.The result shows that the independent director system cannot play a role of corporategovernance. Improve the proportion of independent director and the independent director’sattendance rate of board meeting does no means to over-investment in state-controlled listedcompanies. And board committee also does nothing to over-investment, but there is a significantrelationship between personal ability of directors and investment efficiency. The older directors,the less over-investment. This provides reference ideas for the selection of directors. Theresearch also finds that there is no remarkable relationship between the frequency of boardmeeting and over-investment. And the incentive mechanism is partial validity, reasonable payincentive system can effectively control over-investment, but due to the low proportion ofshareholding for directors, directors’ shareholding fails to reduce over-investment. So perfect thesalary system of state-controlled listed companies and improve the proportion of shareholding for directors may play an important role of corporate governance.