Research On The Effect Of The Executives' Reduction On Investment Efficiency In GEM Listed Companies

October 30,2009,after more than ten years of brewing,known as the Chinese version of the NASDAQ-GEM officially opened in the Shenzhen Stock Exchange,the first 28 companies successfully landed on the GEM.As of July 29,2016,listed on the GEM has reached 518 companies.In the past seven years,the GEM market for China's economic and social development has made outstanding contributions to support a large number of small and medium enterprises,scientific and technological innovation-oriented enterprises,leading the wave of innovation and entrepreneurship.But behind these contributions,the GEM also appeared some worrying issues,such as the "The three-high problems",executives' shares reduction tide and so on.Since the GEM board has been opened,the GEM listed companies have been showing a high issue price,high P/E ratio,over-raised fund characteristics.Since November 1,2010 GEM listed companies since the first batch of restricted shares lifted,the temptation of the high P/E ratio,there has been a series of large shares reduction tide.The reduction of GEM executives are especially concerned by the public,and even some executives don't hesitate to resign in order to sell the stocks as soon as possible.In the hearts of many investors,the GEM seems to be a"money-losing board." The existence issue of the GEM has become a hot topic for many scholars.In the existing research,more is for the motivation of executives'reduction and the market reaction to the GEM after the reduction,For impact of the executives' reduction on the company's investment efficiency,few people concerned about it.Investment efficiency represents the ability of enterprises to allocate resources.The investment efficiency of enterprises is directly related to the operation ability and development potential of the enterprises.The found the impact of the reduction on the investment efficiency of the company can not only fill in the theoretical vacancy,but also enable investors and regulators to clearly understand the relationship between the executives' reduction and the investment efficiency of the company.In the theoretical part of the study,the article is divided into two parts,one part is to study the theory related to the impact of the executives' shares reduction,the other part is related to the investment efficiency of factors.On the impact of the executives' reduction related theory,including the agent problem and insider trading theory.The agency theory argues that because management can not fully retain the residual interest of the company,the effort they bring to work for the company is shared between management and other owners.So the management will have a strong incentive to work negatively,the owner and the management will be the conflict of interest.Insider trading theory holds that insiders,as managers,control the information-dominating power of the company and control the whole process of information production and disclosure.Therefore,the insiders have more information advantages than the external investors.As a result of this information asymmetry,insiders will use the information to control the stock values to attract external investors.After external investors the purchase of shares,insiders don't have motive to run the company.thereby undermining the interests of external investors.The theory of investment efficiency influencing factors includes the definition of investment efficiency from different perspectives,and the main factors influencing the efficiency of investment,such as concentration of stock ownership,debt financing,company size,operation ability,growth,free cash flow and hold of monetary fund.In the empirical study part,the article is carried out through two steps to study.The first step is to calculate the investment efficiency of listed companies on GEM.The second step is to establish a model of the effect of the GEM executives'reduction on the investment efficiency of company,calculate and verify the hypothesis to draw conclusions.In the first step,the article first introduces the popular method of evaluating the investment efficiency of the company,and compares the advantages and disadvantages of these methods,and finally selects the stochastic frontier(SFA)model to calculate the investment efficiency of the listed companies.The results show that in the five years from 2011 to 2015,the average investment efficiency of China's GEM companies is 65.89%,indicating that the overall investment efficiency of the GEM is relatively low,there is still much room for improvement.In the second step,the first is to calculate the investment efficiency as an dependent variable,executives whether the reduction or not and reduction scale as an explanatory variable respectively,the proportion of the largest shareholder,asset-liability ratio,The cash flow ratio,the free cash flow ratio,the growth rate of the core business and the size of the firm are taken as the control variables,and use the panel fixed effect model to calculate and analyze.The results show that whether the reduction or not of GEM executives has a significant impact on the company's investment efficiency,the average investment efficiency of GEM companies which have executives reduction is about 1.8%lower than the average investment efficiency of the companies which have not.And the scale of executive reduction is significantly negatively related to investment efficiency.The larger the scale of executives' reduction,the lower the investment efficiency that the listed companies have.At the end of the article,the author puts forward three policy suggestions:1.Strengthen the management mechanism of the executives of listed companies on the GEM.2.Optimize the governance of listed companies on the GEM.3.Strictly implement the relevant regulations related to the GEM-listed issuance and delisting.