Uncertainty,CEO Power And Overinvestment

As one of the most important economic,activities of an enterprise,the investment decision has an direct effect on the efficiency of the investment,while the latter is the most decisive and important factor that determines the economic value of an enterprise.Management is the key to various contractual relationships of an enterprise with its executives rivalling with its shareholders,creditors and other stakeholders.It is necessary to employ some theories and empirical studies to investigate the relationship between the CEO power and the excessive investment of an enterprise,and this work can promote the development of the corresponding theory and also give some practical suggestions on making policies.The whole reform process of state-owned enterprises since the early 1980 s,is also the process of improving the management power of an enterprise.China's marketization reform has been more than 20 years with many conspicuous achievements fulfilled,but the progress is unbalanced.This paper focused on the excessive investment behavior of an enterprise from the perspective of management power aiming at giving an unique and novel angle of view for preventing the overinvestment behavior,developing and enriching the theories of investment and management.Based on the samples of the A-share listed firms between 2007 and 2014,this paper investigated the relationship between the CEO power and the overinvestment under the condition of environmental uncertainty.The results showed that the properties of ultimate shareholders have significant influence on the relationship between CEO power and overinvestment.Specifically,in the privately controlled listed firms,the overinvestment is positively related to the CEO power,while in the government-controlled ones,the overinvestment is negatively related to the CEO power.It also showed that the moderating effects of environmental uncertainty on CEO power and overinvestment have much difference for different ultimate controlled companies,i.e,in government-controlled listed firms,the environmental uncertainty exacerbates the overinvestment induced by CEO power,while in privately controlled ones,the environmental uncertainty has an opposite effect.