The Quality Of Local Government,Financing Constraints And Corporate Investment

Corporate investment plays a crucial role in macroeconomic growth and enterprises sustainable development.Corporate investment depends on financial supports.However,due to the information asymmetry and agency problems in imperfect capital markets,companies are faced with financing constraints.Scholars at home and abroad have confirmed that the institutional environment has a significant impact on the capital allocation process of enterprises.As an important institutional factor,local governments will also affect the behavior of enterprises.Therefore,the study on local governments quality is increasingly becoming popular.Local governments control important resources such as nature,finance and human capital,they can influence corporate through taxation,administrative approval,etc.In particular,under the background of fiscal decentralization,officials' promotion evaluation mechanism makes local governments have strong motivation to interfere in enterprises financing and investment behaviors.In recent years,China is changing economic development mode.Companies are facing greater regulatory pressure and their investment shows relatively obvious heterogeneity.Therefore,it is of great significance to explore the macro influencing factors behind corporate investment and help companies find new investment motives.This paper relies on the research of present literature.Using theoretical and empirical methods to explore the impact of local government quality on corporate investment and financing behaviors.Based on non-financial panel data of Shanghai and Shenzhen A-share market listed companies from 2010 to 2015,this paper build local government quality indicators and use Tobin's Q model with the help of Excel and Stata software,to examine the impact of the quality of provincial local governments on enterprises investment spending,investment efficiency and financing constraints.Furthermore,this paper also studies the impact on companies in different ownership of the property and in different areas.Empirical results show that the improvement of local government quality can promote the investment of enterprises in that jurisdiction.Every sub-indicators of government quality and the comprehensive index can significantly improve the company's Investment-Tobin Q sensitivity,indicating that the higher the quality of local government,the higher the investment efficiency of enterprises.Although empirical results show that enterprises in our country are generally faced with financing constraints,the improvement of local government quality can significantly reduce company's investment-cash flow sensitivity,which means reducing the financing constraints.In addition,the sub-sample regression results show that there is indeed mystery in corporate investment efficiency in China,that is,the investment efficiency of non-state-owned enterprises is lower than that of state-owned enterprises.However,after the quality of local governments were added to the regression,Non-state-owned enterprises investment efficiency was greatly improved with the improvement of local governments quality.Meanwhile,compared to state-owned enterprises,the improvement of government equality has a greater impact on reducing non-state-owned enterprises' financing constraints.When sorting samples into four different regions,it is found that the influence of local government quality on the capital allocation process is more significant in the central region.Finally,Richardson model was used for robustness test to measure investment efficiency of enterprises and outcomes were consistent with the conclusion of Tobin Q model.According to empirical results,this paper proposes policy suggestions to both government and enterprises.Firstly is to improve the quality of local government by improving administrative efficiency,strengthening the relationship with the market,protecting property rights of enterprises and increasing the supply of public goods.Secondly,improving the internal governance mechanism of enterprises.Such as,owners of the company take effective incentives to motivate managers make scientific investment decisions.In addition,companies should actively expand their financing routes and seek for Internet market to ease financing constraints.