Over-investment Behavior And Equity Refinancing Costs Of China’s Listed Companies

With the development of China’s market economy, investment and financing efficiency are given more and more attention from all sectors of business and society. Recently, lots of researches about overinvestment have been done by academic society, many achievements have been gained in the aspects of causes of overinvestment and control method, but few scholars pay close attention to the economic consequences of overinvestment. Based on China’s special background and market environment, from the perspective of the relationship between investments and financing, using the method of empirical research, this paper establishes empirical research model appropriately to study the effects of overinvestment in the equity refinancing costs.At first, with the data of A-share listed companies from2010to2012, this paper investigates the investment behavior of Chinese listed companies. Then taking the equity refinancing qualification of the listing Corporation as a sample, comparing and analyzing the effects of overinvestment and underinvestment on the cost of equity financing. Finally, to get the qualification of equity refinancing and the existence of overinvestment behavior of the listing Corporations as the sample, analyzing the effects of overinvestment in equity refinancing costs using multiple linear regression, introducing the role of state-owned controlling factors as well.This thesis consists of6parts which proceed as follows:Part Ⅰ introduces the background, significance and methodology of this study, and also proposes innovative points of this study. The second part is a literature review, this part reviews the relevant literatures of domestic and foreign scholars and makes a brief commentary. The third part is the theoretical analysis and the proposed hypothesis, mainly makes theories theoretical analysis of the content based on the related theories and proposes the proposed hypothesis. Part Ⅵ is the empirical study design, including sample selection and data sources, variable definitions and the establishment of an empirical model. Part Ⅴ is the empirical analysis, includes descriptive statistics, correlation analysis and regression analysis, and verifying the robustness of the empirical results. Part Ⅵ is research findings and policy recommendations, makes a summary of this research, puts forward relevant policy suggestions, points out the shortage of this research and the prospect of future research.The main results of this study are summarized as follows:1) Overinvestment behavior of Chinese listed companies is common, but state-owned companies and non-state-owned enterprises are not significantly different;2) There are obvious differences between the over investment and insufficient investment of two kinds of non-efficiency of investment. From the perspective of the impact on the cost of equity financing, the equity financing costs of underinvestment corporates are significantly higher than overinvestment enterprises;3) The more serious overinvestment, the higher the company’s equity refinancing costs, but State-controlled factors can significantly reduce overinvestment positive impacts on the cost of equity financing.This paper is innovative in the following aspects:1) Previous studies about overinvestment have mainly concentrated on the causes, identification and control mechanism, etc., but there is less research on the economic consequences of overinvestment, especially the empirical aspects. This article studies the effect on the cost of equity financing of over investment from the perspective of the economic consequences;2) Overinvestment and underinvestment are two kinds of non-efficiency investment, there has been little research on the differences between the two before. This paper from the equity financing cost perspective, comparing economic consequences of the two kinds of non-efficiency investment, study of two kinds of non-efficiency investment’s effect on the cost of equity financing;3) This article bases on our special national conditions, considering the impact of property rights system, introducing the factors of state-controlled to the study, in order to examine how "the nature of state" impacts the economic consequences of overinvestment.