Managerial Self-interest,Corporate Finance And Over-investment

With the development of market economy and the continuous deepening of reformand opening, China’s economy grew rapidly. As well as China’s economy, Chineseenterprises developed rapidly, and its investment was increasing.But not all the investments are efficiency. Excessive investments do not only doless help to the development of firm, but also do some harm to it. In recent years,Chinese state-owned enterprises had so much investment that most of them areinefficient and over-investment is the most common form of it. Why does thisphenomenon happen? Is it because of the self-interest of the managers or national policy?Whether the enterprises’ financing capacity plays as a booster to the over-investment?With these questions, this paper researches the relationship between managerialself-interest and over-investment and how does the enterprises’ financing capacity affectthis relationship.The paper contains five Chapters. Chapter1introduce the paper’s background，significance，ideas and methods. Chapter2sums up the former research achievementabout managerial self-interest, financing capacity and over-investment at home andabroad. Chapter3contains theoretical foundation and theoretical analysis. In this part,the relation between managerial self-interest, financing capacity and over-investmenthas been expounded in detail. Chapter4is the empirical analysis. With the empiricalanalysis, some conclusions be gotten. First, both managerial self-interest and thecapacity of firm financing are able to boost over-investment. Second, equity financingability, debt financing ability and internal financing ability aggravate the enterprises’excessive investment. To the enterprises excessive investment, the two formers are moreinfluential than the last. For Chinese state-owned enterprises’ over-investment, Chapter5presents some related recommendations to solve the problem. First, improve thecorporate governance on board of directors, supervisors, independent directors andsalary incentive to reduce managerial self-interest. Second, enhance the supervision ofthe investment to ensure the efficiency. Third, enhance the supervision the externalcapital market to balance the external financing capacity of enterprises.This paper tries to put forward innovation as follows:First, combining the background of China economy system, the paper constructs the comprehensive index of the managerial self-interest and analyses the influence toover-investment.Second, on the basis of relation between managerial self-interest and excessiveinvestments, the paper pull-in the enterprises’ financing capacity, which was theobjective factor to investment, to analyses the relation between managerial self-interestand over-investment in the different financing ability.