Research On The Relationship Between Political Relevance And Overinvestment Of Enterprises

As an important foundation for obtaining investment income and achieving financial goals,making decisions about investment is the most significant decisions of all the decisions,which will have a vital impact on the future cash flow of the enterprise,and will affect the firm’s ability to achieve its goal.Mistakes in making investment decision may lead the enterprise to a troubled situation or even bankruptcy,and at present the efficiency of investment,especially the overinvestment is widespread in enterprises,and affects the firm’s ability to resist risk and to obtain profit.Political relevance refers to the relationship between the enterprises and government officials or the government.Generally,the enterprises hire people who are or were government officials as top managers of the company,or the company executives run for representatives of NPC and CPPCC,to gain political relevance.A large number of studies have shown that political association is the common phenomenon all over the world,especially in the developing countries and emerging markets where political association is playing an important influence as an alternative mechanism of the market and legal system.Our country is in economic transition period,the government is playing an important role in the allocation of resources,thus many enterprises are trying to establish relations with the government or government officials through a variety of ways in order to obtain more economic resources and support from the government.Therefore,studying what resources enterprises can get from the government,and how these resources influence corporate investment behavior from the perspective of political association,has important theoretical significance and practical significance.This paper studying the relationship between political relations and overinvestment of the Shanghai and Shenzhen listed companies from 2010 to 2013,on the basis of summarizing the relevant researches,using the theory of rent-seeking,the reputation information theory and social capital theory,through normative analysis and empirical analysis.First of all,on the basis of the theory of rent-seeking,the reputation information theory and social capital theory,this paper expounds the formation causes of enterprises to establish political relevance,and combining the existing theory of overinvestment to show that the theory basis of the formation of overinvestment.Secondly,analysis which welfare resources the political association can bring for enterprises,and has carried on the empirical test.Thirdly,analysis the relationship between these resources and overinvestment from the from the perspective of political relevance,and complete corresponding empirical study.Finally,based on the above research,give suggestions to curb overinvestment from the perspective of political relevance.This article drew the following main conclusions:1.Political relevance will cause different treatments to the enterprises,the more intense political relation is,the more IPO amount,bank loans,subsidies and investment opportunities the enterprise can obtain.2.The funds raised in the IPO is significantly positively related to enterprise’s overinvestment,and the bank loans and subsidies also has a positive correlation with overinvestment behavior,but not significantly,moreover,the investment opportunities has a significantly negative correlation with overinvestment.3.Under the background of political relevance,funds raised from IPO,subsidies,as well as investment opportunities are significantly positively related to overinvestment,while bank loans is significantly negatively related to overinvestment.4.Different participants should make efforts together in order to inhibit overinvestment:the government responsibility should be regulated,banks should strengthen the supervision and restraint of corporate debt,and companies should make investment decisions from the long-term perspective.