Empirical Study On Large Shareholders And The Company’s Non-efficiency Investment

Investment decision-making is a effective selection process amongmany investment projects under the constrain of capita. It plays a vitalrole in the decision of company’s business risk, profitability andprospects. So, Investment decision-making as the most important one inthe three decisions of company will directly affect the company’sfinancing decisions and dividend decisions. But busines’s investment isnot entirely efficient, with the development of economic, non-investmentand over-investment caused by inadequate investment in manycountries has become a new problems that Scholars faces.Over-investment would make company put too much money in the areaswith excess productions or areas has negative earnings. This willresulting in a waste of corporate resources, increase their financial risk;under-investment will make enterprises miss the good developmentopportunity and delay the development of enterprises, and ultimatelyharm organization’s overall value. For my country, the non-efficiencyinvestment are prevalent in our listed companies, so the efficiency ofinvestment has received more and more attention in China. Meanwhile,although china carried out equity structure reform in2005, butconcentrated ownership structure is still the main theme in listedcompanies,"dominance" is prevalent. Controlling shareholder’sprofit-driven nature will make them use their controlling right dosomething against the interests of small shareholders, they manipulatethe company’s investment decisions, and make enterprises donon-efficiency investments.This paper is based on the perspective of large shareholders, andcarries on theoretical analysis and empirical testing on corporatenon-efficiency investment behavior. First, we have a brief introduction onthe characteristics of our ownership structure, then through thecontrolling degree on the general shareholder’s meetings and thedecision-making rights to the company, we reach the conclusion that most of our country’s listed companies have a large shareholder. Then,we construct a theoretical model of the controlling shareholder ofinefficient investment in enterprises on the basis of the mechanism. Last,we use the dates of Shanghai and Shenzhen A-share listed companiesin2005-2009to have an empirical test. The results showed that: largeshareholder tunneling is positive associated with under-investment;Shareholders of checks and balances also have positive associated withunder-investment; corporate over-investment ratio increased and thendecreased to show the inverted U-shaped relationship as largeshareholders increased; state-controlled firms tend to over-investment.Empirical results come to the same conclusion as the cortical analysis inthe third part of this paper. At last, according to earlier research findingscombined with the excellent experience of foreign countries, we proposerelevant suggestions respectively from external supervision and internalsystem design to improve our inefficiency investment in the status.