A Study Of Investor Sentiment’s Impact On Corporate Investment

The traditional financial theories based on the assumption of efficient market theory and rational people support that corporate investment decisions is related to the return of the investment project, regardless of the financing decision. But with the rise of the behavioral finance, numerous studies show that investors are not entirely rational investors and the market is not completely effective, investors irrationality will affect the market price of the stock, which not only lead to the transfer of wealth between individuals, but also have an impact on the real economy. Baker, Stein, Wurgler(2003) and Polk, Sapienza(2009) proposed equity financing channel and catering channel to proof investors irrationality’s impact on corporate investment. And Baker(2009) states that it is not appropriate to study the company’s investment、financing decisions and market pricing theory separately in the case of inefficient market. As an emerging and transitional market, the investors are mainly individual retail investors and the speculation is serious, the degree of investor irrationality is relatively high. Corporate investment which is one of the three decision-making behavior is the main force driving China’s economic development. Therefore this paper studies the investor sentiment impact for corporate investment from the perspective of the investor irrationality.This paper first reviews related theoretical model about investor sentiment and corporate investment. Then using principal component analysis to construct a integrated measure to measure investor sentiment. Later, this paper mainly studies the following four questions through empirical analysis:(1)Investor sentiment impact for corporation investment and through which transmission mechanism to play a role;(2)The economic consequences caused by investor sentiment impact for corporation investment;(3)Whether the investor sentiment impact for corporation investment is affected by the corporate governance;(4)Whether the worsening effect caused by investor sentiment impact for corporation investment can be eased by corporate governance. This paper obtains the following conclusions: in China’s stock market, the investor sentiment play a role on corporation mainly through catering channel, not the equity financing channels; the investor sentiment impact on corporation investment has two sides: not only deterioration, but also ease; and the degree of catering is affected by supervision mechanisms and salary incentives mechanisms. Therefore, when the investor sentiment deteriorate corporate investment, the companies can alleviate this deterioration role through supervision mechanisms and salary incentives mechanisms.