Research On The Correlation Between Managerial Ability,Managerial Power And Investment Efficiency

Under the circumstance of rapid growth of economy in China,the scale of investment has maintained a high growth rate.Some structural problems are prominent since proactive fiscal policies have been launched in response to the financial crisis,and the degree of polymerization of investment in some certain industries began to increase,resulting in over-capacity problem.In the meanwhile,there exists financing difficulties in some other industries,leading to insufficient investment.Generally speaking,the investment efficiency of listed companies in China are relatively low.Corporate investment decision is influenced by many factors,among which principal-agent problem and information asymmetry come first.In some listed companies where exist agency problem and information asymmetry the investment decision will deviate from the optimal investment level of certain companies,undermining the target of corporate value maximization.As the reform of state-owned enterprise goes further in China,"owner absence"is increasingly serious in listed companies;thus the managerial power began to expand.Where there are defect in the internal governance structure and lack of effective supervision of power,opportunism behavior of management prevails,resulting in a further decline in investment efficiency.From the perspectives of heterogeneity of managers,managers of different abilities tend to behave differently in identifying development opportunities,acquiring information and choosing strategies.Competent management can effectively alleviate the financing constraints caused by information asymmetry as well as achieve the ideal salary through effective management,avoiding opportunism behavior;thus investment decisions made are more consistent with the target of corporate value maximization.Since effects of managerial ability and managerial power on corporate investment behavior are not consistent,there remains to be seen whether the joint effect of managerial ability and power is positive or not.This paper attempts to provide a possible solution to the inefficient investment problem at a micro or corporate level.Based on the background above,this paper collects the annual data of China A-share listed companies in manufacturing industry from 2010 to 2015 to study the correlation between managerial ability,managerial power and investment efficiency through both theoretical analysis and empirical test.The conclusions are as follows:(1)Managerial ability has a positive relationship with investment efficiency.It is more likely for managers with higher ability to get access to necessary private information when making investment decisions in their own right,avoiding blind compliance which might lead to over-investment.In the meanwhile,more able management can ease under-investment effectively by integrating internal and external information and overcoming financing constraints from outside.(2)Self-interested managers are more likely to make excessive investment decisions when empowered overly.However,when it comes to the under-investment,it will be reduced to some degree because powerful managers are inclined to make aggressive investment decisions.(3)Investment efficiency will be reduced by the joint function of managerial ability and managerial power.Competent managers can not restrain inefficient investment caused by extreme managerial power effectively;instead,the positive function to improve investment efficiency will be suppressed by the negative effect made by managerial power.Further analysis shows that the effect above is only significant in the sub-samples classified as over-investment;whereas in the case of under-investment,the positive role of managerial ability on investment efficiency can not be compromised due to managerial power.Based on the results,some suggestions to improve investment efficiency are concluded as follows:First,strengthen top management team building,improve performance evaluation system and make the screening effect of market competition of professional managers fully work.Second,improve the internal governance mechanism,optimize the internal governance structure,distribute power scientifically and reasonably,and reinforce internal supervision for management.Third,gradually reduce intervention of government as well as establish an external supervision system for the management,encouraging the major role of market mechanism played in appointment and supervision of management of listed companies.The possible innovations of the paper are as follows:(1)This paper examined the influence of managerial ability on investment efficiency as its economic consequence with the method of the DEA-Tobit two-stage regression,which is the latest comprehensive measure of managerial ability.The results showed that managerial ability could significantly improve the efficiency of investment.(2)In the existing literature,factors of investment efficiency have been studied widely,among which external environment and company characteristics comes first;however,management traits is seldom concerned.This paper examined the joint effect of managerial ability and managerial power on investment efficiency from the aspects of management qualities and corporate governance.The results showed that the positive role of managerial ability in improving efficiency of investment could be suppressed by managerial power.