Environmental Uncertainty, SEO And Overinvestment

The operation and management decisions of an enterprise are closely related to the environment.From a strategic point of view,when the environment is uncertain,managers need concentrate more on making strategic decisions,which makes manager's ability more important;while from a financial perspective,environmental uncertainty will affect the operation of an enterprise,and also will affect the allocation of enterprise resources.“Separation of Two Rights” will bring some conflict of interest between shareholders and managers,which make the target of shareholders confronted with managers'.It will finally lead to opportunistic behavior.On this basis,managers' decision may be benefit to themselves and do harm to the maximization of the enterprise's value,which may lead to overinvestment.Since the introduction of MM theory in 1958,the problem of finance has been focused by domestic and international research for more than 50 years.The research on refinancing of listed companies is mainly focused on seasoned equity offering(SEO),including the effect of SEO announcement,the long-term bad performance of stock prices of SEO and so on.Companies that carry out equity refinancing have abundant cash flows,which give managers a full range of decision-making space,looking for investment opportunities,creating value for the enterprise.However,what role will the agency problem play,how will the SEO affect the company's investment? When the environment is more uncertain,what will the relationship be?Based on the above-mentioned problems,this paper mainly analyzes the impact of SEO on overinvestment of enterprises,the impact of environmental uncertainty on overinvestment,and how does the environmental uncertainty affect the relationship between SEO and overinvestment,using the theories of agent problem,signal transmission and tunneling effect.This paper mainly includes the following parts: the first part,introduction,this part is the foundation of this paper,and lists the framework and the innovation of this article;In the second chapter,literatures on environmental uncertainty,SEO and overinvestment are reviewed.Then the literature review is made on the basis of the research emphasis and the limitation of the above-mentioned literature.The third part is the theoretical analysis,which mainly elaborates the agent problem and the information asymmetry theory.The fourth part is about research design.Based on the previous part of the theoretical analysis,make the assumptions of the relationships between environmental uncertainty,SEO and overinvestment.Define and explain the relevant variables.Then come up with the models of analysis;the fifth part is the empirical analysis,which includes descriptive statistics,correlation analysis and regression analysis,and the regression results are robust through the test;In the last chapter,the conclusion and research inspiration are summarized.The limitations of this research are pointed out and the future research directions are also discussed.This paper takes China's 2011-2015 A-share listed companies in Shanghai and Shenzhen as research object.Making empirical analysis to verify the hypothesis,give the results as follows:(1)SEO is significantly positively related to overinvestment,which indicates that the agency problem between managers and shareholders makes managers to invest the non-efficiency project for the interests of themselves and blindly invest in the project even though its net present value is below zero.(2)The environmental uncertainty is positively correlated with the overinvestment of the enterprise,which indicates that the agency problem between the large shareholders and the small shareholders makes the shareholders and the managers make “tunneling” the enterprises with strong environmental uncertainty.Or risk more due to a preference for higher returns,leading to overinvestment.(3)The cross-item between environmental uncertainty and SEO is positive correlated with over-investment,indicating that environmental uncertainty will increase the overinvestment caused by SEO.It makes the enterprise overinvest more when the environment of SEO company is more uncertain.Managers will take the opportunity to ample cash flow to expand the investment scale for their own performance interests.And even if the investment failure can also be attributed to the external objective environment.The conclusion of this paper has certain reference significance for internal governance and external supervision of listed companies.An empirical study based on the listed companies in Shanghai and Shenzhen A-share listed companies shows that environmental uncertainty is a co-variable of overinvestment and SEO,which indicates that if the environmental uncertainty faced by SEO enterprises increases,the enterprises which have plenty of money should pay more attention to the internal governance mechanism of enterprises.Concerned about whether managers and shareholders will do harm to the maximization of the enterprise's value.On the one hand,people should be careful about the investment behavior,keep an eye on the shareholders in case of the SEO becoming the method of they get their own profit.On the other hand,the management needs to be more stringent of the supervision,to prevent the agency problem do harm to the target of enterprise value maximization.