Resarch Of Property Right, Executives Incentive And Inefficient Investment

Investment is the core part of the three major financial theories, namely, fundraising, investment and dividend distribution for enterprises, and so it is of great significance for their survival and development; from a macro perspective, investment, consumption and export, also known as "the three carriages" which promote China’s economic growth, have great significance for the economic development of China. Enterprises’management is implemented through investment behaviors, effective investment is closely related with the survival and the long-term development of the enterprises. But the recent research shows that in recent years, although the whole society’s fixed asset investment in China has increased year by year, but the investment efficiency has also declined year by year. Non-efficient investment is relative to the corporate efficient investment, which is mainly divided into two categories: overinvestment and underinvestment. Overinvestment refers to that the Net Present Value (NPV) of the corporate invested project is less than zero while the underinvestment refers to that the corporate gives up the project, whose NPV is greater than zero. Non-efficient investment will lead to low efficient capital allocation and damage the enterprise value. The main reason for the low efficient investment lies in the separation of ownership and management, leading to the principal-agent problem prevailing among the senior executives and shareholders. Besides, the information asymmetry also results in overlooking the feasibility of the project because of their own interests when the senior executives make decisions about investment, they tend to get hidden income through non-efficient investment, which accordingly results in the non-efficient investment. In the principal-agent theory, the principal-agent problems can be solved through the establishment of effective incentive mechanism, and their common interests will force the senior executives to consider more about the long-term development of the enterprise and the interests of the shareholders in the decision-making. At the same time, in order to alleviate the non-efficient investment because of the information asymmetry, enterprises should establish a more effective supervision system, and effectively avoid the short-term behaviors of executives. But in reality, the cost for the supervision mechanism is rather high when it comes to the enterprise management, and the supervision mechanism is far from perfect, so it is suggested that enterprises should attach more importance to setting up the incentive mechanism.Moreover, due to China’s unique system and background, listed companies can be divided into state-owned and non-state-owned companies, the tendency of the efficiency of investment under different property rights is quite different, the same is true of their investment scale. So this essay is aimed at focusing on the relationship between property rights, executive incentive mechanism and non-efficient investment.This essay is composed of six chapters. Chapter One gives a brief introduction to the research orientation and significance, outline and content, and its innovative ideas. Chapter Two sorts out the related literature at home and abroad, concerning the nature of the property rights, non-efficient investment and the senior executives’incentives, makes a comment on the research status of their effect on the non-efficient investment. Chapter Three defines the basic concepts of the top executives, the monetary compensation incentive scheme and non-efficient investment, and then proposes some corresponding assumptions by analyzing the principal-agent theory, the information asymmetry theory, incentive mechanism theory. Chapter Four and Five makes an empirical study of the following problems:1) non-efficient investment orientation under the different natures of property rights; 2) the effect of the top executives’and shareholders’monetary compensation incentive scheme on non-efficient investment; 3) the effect of the top executives’incentives on the non-efficient investment, caused by different natures of property rights. This essay adopts 5405 sample data, collected from 1315 A-share listed companies from 2011-2014. The empirical study shows that there exists non-efficient investment because of overinvestment and underinvestment in China’s listed companies. Compared with underinvestment, overinvestment is more grave. From the point of property rights, overinvestment is quite common in China’s listed companies, the assumption that non-state-owned listed companies tend to invest inadequately has not proved yet. Executives’ monetary compensation incentive scheme is positively related to the excessive investment of the listed companies and negatively related to the inadequate investment. This shows that executives’ monetary compensation incentive can promote the excessive investment of listed companies, and has some inhibiting effect on inadequate investment. Meanwhile, executive equity incentive has positive correlation with the excessive investment, and negative correlation with the underinvestment, but all these are not noticeable enough. In the light of the regulation of property rights, property rights are able to make some adjustment between the executives’ monetary compensation incentive scheme and the non-efficient investment. In comparison with the non-state-owned enterprises, the monetary compensation incentive scheme in the state-owned enterprises can have much greater alleviating effect on the non-efficient investment. Chapter Six makes a conclusion. Based on China’s characteristic system and background countermeasures have also been put forward such as perfecting the executive monetary compensation incentive system, perfecting the equity incentive system, and optimizing the ownership structure in China.