Product Market Competition,Stock Price Volatility And Corporate Investment Decisions

With the continuous expansion and improvement of China’s stock market, the impact of the stock market on the real economy is gradually deepened. Stock market acts as a platform for enterprises, and the price volatility risk is applied to the enterprise. Under the combined effects of two factors, the company’s investment plans will be affected. On the one hand, the investment plan needs funds as the foundation. The funds is just like blood throughout the entire business management process. Only after a full raise start-up capital investment, plans can be launched timely. On the other hand, the share price fluctuations will affect market expectations for enterprise development. Once the turbulent stock market appears, atmosphere of panic in the market will be followed, and investors are likely withdraw funds out of the stock market. Changes in the stock price should also be considered when managers make investment decisions. Due to the presence of information asymmetry between managers and investors, managers have a clearer understanding of the real value of the company. So when the stock price continued to rise, higher than the true value, managers trend to make equity financing. Raising funds can be at a lower cost at that time. When the stock was undervalued, managers believed that equity financing was higher cost, and would reduce the amount of equity financing. Changes in fund-raising of corporate is bound to business investment, because there will not add value for idle funds. In order to reduce the opportunity cost of the investment, investment will be increased. So the impact of stock market volatility on investment in fixed assets of listed companies is influential.Ventures can not be separated from capital market, also inseparable from the product market. Thus, many factors on the products the market will affect companies operating condition. Among them, the competitive environment in product market is an important consideration in business decisions. First, consumer demand faced by individual companies, the competitive structure of the industry, raw materials and labor markets and other factors can affect the flow on the company’s own cash to some extent, and free cash flow is one of the sources of available investment funds. Secondly, there are different levels of competition in product markets in different sectors, and product competition will be passed into the company’s financial data, which affects corporate investment decisions. Finally, China’s national conditions, the government enacted a series of laws and regulations to promote fair competition in the market, which indeed achieved some success. But there is still shortage of competition in excessive industry. Moreover, in the context of a gradual economic integration, The enterprises in China will not only face the competition of local enterprises, as well as foreign companies.Throughout the research on the correlation between the stock market and investment gradual refinement, the impact of product market competition and investment in fixed assets has gradually been consistent point of view. But the authors of the literature does not grasp the comprehensive analysis of three factors.The authors believe that market competition will affect the stock market in some way.The product market and the stock price volatility interaction term may also have an impact on investment in fixed assets. Therefore, this article attempts to explore the impact of stock price volatility, product market competition as well as the interaction between them on the fixed asset investment. Specifically, the paper is divided into six parts.They are as follows:The first chapter is an introduction, introducing the background and significance of this paper describing the main content and the innovation and the weakness of this article.The second chapter is literature reviews, which are from domestic and foreign researchers,including the link among product market competition\the company’s stock price volatility and investment decisions.The third chapter includes the theoretical analysis and research hypothesis. This part introduces the theory development of investment decisions, which is theoretical basis for the econometric model--FHP model; combined with stock price volatility factor,it explains the impact of stock price volatility on investment decisions and made two theoretical assumptions:stock price volatility and investment are positively correlated,irrational stock price volatility and investment are positively correlated; combined with product market competition factors,it outlines the theoretical analysis of the relationship between product market competition and investment decisions, then proposes a theoretical hypothesis:product market competition and investment are negatively correlated; combined with the two factors--product market competition and volatility, it explores their impact on the company’s investment, and makes an assumptions and an inference:facing different product market competition, investment--stock price volatility sensitivity will be different. We conclude that this conclusion could also be applied to investment companies-irrational share price sensitivity.The fourth chapter is data processing and research design, describing the sample data source, the variable interpretation and selection of econometric models, while, in order to avoid spurious regression problem, the last part of this section shows the stationary test resultsof each variable.The fifth chapter is the empirical research results and analysis,presenting descriptive statistics for each variable and the result of FHP model with the interaction term. By comparing the theoretical analysis,we verify the five hypothesises which is proposed in the third chapter.The sixth chapter is the study conclusions and policy recommendations,outlining conclusions obtained from the whole article after the theory and empirical analysis.The main innovation of this paper is we did not use indicators of the degree of market competition directly into the FHP model. We choose to build HHI indicators and use the median as the cutoff point. The panel data are divided into two groups.Then we set up a virtual variable.This method can minimize the direct impact on the value of the product of specific indicators of the degree of competition equations. In addition, the paper can reflect changes in the stock price index Tobin’s Q decomposition, more detailed study the effects of rational and irrational stock price on the stock investment behavior, as well as the degree of competition in different product markets, rational and non-rational stock price impact on investment behavior.The inadequacies of this article is only considered domestic product market competition, but against the economic integration and the gradual elimination of trade barriers, the intensity of competition in the international market will have some impact on the financial situation of their enterprises, and thus will investment decisions that inhibit or promote the role. In addition, the paper chosen to measure the degree of competition in product markets index is HHI, HHI but only reflect the degree of competition between the different sectors of the market level, but within the industry, there are enterprises and non-leading enterprises of the points, there are also internal industry competition.