External Governance Environment, Ownership And Investment Efficiency Of Listed Companies

Business investment is a classic problem in the academic research spheres. A large number of domestic and foreign scholars researching enterprise investment have been carrying out extensive and in-depth discussions on the subject, in which, a large part of them indicate that investment in these enterprises has deviated from the optimal investment level. However, previous studies were mainly based on asymmetric theory and agency cost theory in explaining the inefficient enterprise investment behavior, ignoring the impact of external corporate governance environment on the enterprise investment. However, each specific enterprise exists in a particular external environment, and while trying to avoid losses, this enterprise will always make strategic business decisions according to the external environment it resides in. Therefore, the research on how external governance environment affects firm’s investment efficiency is both theoretically and practically significant.China has a vast territory. There exists a significant disparity in the level of economic development as well as external governance environment among the regions. This research uses data of A-Share listed companies listed in Shenzhen and Shanghai stock exchanges in the period2003-2012as a sample, and empirically studies from the extent of government intervention, financial development level and the level of the rule of law of external governance environment on the investment efficiency of China’s listed companies. The study combines firm’s characteristics of the nature of property rights and divides the sample into two groups, state-owned and non-state-owned listed companies, to further study whether the impact of external governance environment on the listed companies is the same when the nature of property rights is different.The empirical results show that:(1)The extent of government intervention and investment efficiency of listed companies are negatively correlated. Thus, the higher the extent of government intervention, the lower the investment efficiency is in the region’s listed companies. On the nature of property rights, the research reveals that, when a listed company is state-owned, government intervention will lower the company’s investment efficiency. On the other hand, government intervention is insignificant on the company’s investment efficiency when the listed company is non-state-owned. (2)Financial development and the investment efficiency in listed companies are positively correlated. That is, the higher regional economic development with the higher investment efficiency of the listed companies. Further, on the nature of property rights, the research reveals that, when a listed company is state-owned, improvement on the financial development will lower investment efficiency of the listed companies. On the other hand, financial development can improve enterprise investment efficiency when the listed company is non-state-owned.(3)The rule of law and the level of investment efficiency of listed companies are positively related. That is, listed companies in the regions with high levels of rule of law are expected to have high levels of investment efficiency. In addition, on the nature of property rights, when the listed company is state-owned, the research further reveals that improvement in the rule of law will reduce investment efficiency in listed companies. However, the rule of law can improve investment efficiency of listed companies when the listed company is non-state-owned.