Research On The Inhibitory Effect Of Corporate Governance Characteristics On Over-investment Behavior

Our economy has growed rapidly since we followed the policy of reform and opening in the end of 1980s, and investment rate has been maintained at a high level of 30% in recent years, the rate of investment even climbed to 40%. High investment rate and economic growth, at the same time, also brought repeated construction and over-investment. The so-called "over-investment" refers that a company Invests in negative net present value of the non-profit project regardless of its own capabilities and growth opportunities, leading to decline in enterprise value (Jensen,1976). Agency problems and information asymmetry are important factors leading to over-investment, but good corporate governance system can effectively resolve the problems of inefficient investment caused by agency conflicts and information asymmetry, constrain managers’behavior to pursue personal interests. Meanwhile, because of the special institutional background and economic system, the proportion of state-owned shares in enterprises has a significant impact on enterprise’s operations. For this reason, firstly, this paper confirms the nature of ultimate controller, then chooses the non-state controlled listed companies as our sample to research the inhibitory characteristics of the corporate governance on over-investment by analyzing empirical data.After combed the related literature and theoretical results at home and abroad, this paper firstly analyze those corporate governance factors which may have inhibitory influence on the over-investment, and then put forward the hypothesis. Secondly, this paper uses Richardson (2006) model to measures the over-investment degree, found that over-investment issues are prevalent in non-state controlled listed companies. Then this paper empirically tests the inhibitory characteristics of the corporate governance on over-investment based on the data of non-state controlled listed companies, focus on ownership structure, board of supervisors and salary incentive, the creditor governance.The results show:in non-state controlled listed companies, degree of ownership balance and monetary rewards incentives play an active role in restraint over-investment; But the shareholding proportion of the institutional investors, board of supervisors and proportion of management shareholding do not have significant constraints on over-investment; As for creditor governance, asset-liability ratio and the part of current liabilities in total liabilities have a significant inhibitory effect on over-investment. Finally, according to the above conclusions, we make relevant recommendations on how to curb over-investments by improving corporate governance.