Government Intervention, Distortion Of Capital Factor Market And Excessive Investment By State-owned Enterprises

The investment behavior of the company is one of the core issues in corporate finance research. In the perfect capital market assumptions,a company's investment behavior depends only on whether the investment can maximize the value of the company. In the real world,however,the firm's investment behavior tends to deviate from this criterion.The excessive investment of state-owned enterprises in China is widespread. The domestic scholar has carried on thorough research on the possible reason and the results which the over investment behavior may produce. However, most of these studies ignore the unique institutional environment and market environment of China's state-owned enterprises,which can not explain the causes of over-investment of state-owned enterprises, and can not put forward targeted countermeasures. Therefore, combining the unique institutional environment and market environment of China's state-owned enterprises is an urgent issue.The capital investment behavior of state-owned enterprises to a certain extent determines its long-term production capacity. Therefore, the over-investment behavior of state-owned enterprises in China may lead to a large-scale overcapacity. The study of the relationship between over-investment of state-owned enterprises and overcapacity of state-owned enterprises is also of great significance to the management of overcapacity.In this paper, the SOWOL production function model is constructed by combining theoretical research and empirical research. The relationship between government intervention, factor market distortions and over-investment is proved theoretically and the corresponding hypotheses are put forward. Then, using the method of dynamic panel data and system GMM, we test the hypothesis by examining the relationship between government intervention,factor market distortions and over-investment. Finally,the paper studies the relationship between over-investment and overcapacity in state-owned listed companies in manufacturing industry using the method of quantification of overcapacity in microcosmic enterprises by Zong Feng and Huang Jian Bo (2013).Through theoretical research and empirical test, this paper first finds out that government intervention has caused over-investment behavior of state-owned enterprises.Secondly, there are significant dualistic structure and financial discrimination phenomenon in China's capital factor market. Non-state-owned listed companies bear much higher cost of capital. On this basis, this paper constructs the Market Distortion (MD), which is a quantification index of market distortions at the micro level, and studies the relationship between this index and the state-owned enterprises' over-investment. The study finds that the distortions of the capital factor market lead to excessive investment behavior of the state-owned enterprises,while the distortions of the capital factor market come from the improper intervention of the government. Finally, this paper found that the over-investment behavior of state-owned enterprises result in the situation of excess capacity. By constructing the index of excess capacity of micro enterprises, we find that the over-investment behavior of state-owned enterprises in the early stage often leads to its overcapacity, which is manifested in the increase of inventory growth rate and the increase of fixed assets income ratio.This paper consists of seven parts and the specific content is as follows:The first part is the introduction,which mainly introduces the background and significance of this paper and introduces the research methods and ideas.The second part is the relevant literature which is a certain sort of mining, theoretical research providing the basis for research.The third part mainly combs the background of the state-owned enterprises and the progress of the state-owned enterprise reform.In the fourth part, the relationship between government intervention, factor market distortions and overinvestment is proved theoretically by the derivation of SOWOL production function model and the related theoretical analysis, and three corresponding hypotheses are put forward.The fifth part of the corresponding hypothesis design and conduct the corresponding empirical research. And the results of empirical research are analyzed.The sixth part summarizes the conclusions and puts forward the corresponding policy recommendations.