Analysis Of Causes And Consequences Of Overinvestment In Wuxi Suntech

The investment behavior of enterprises is an important basis for the formation of reasonable capital structure and an important determinant of the balanced development of enterprises.The decision of investment behavior will affect the production operation,resource allocation and financial decision making,and the result will directly affect the business performance,profitability and development prospects.But because of the complexity of decision-making process and influence factors of the investment decision of enterprises results do not always reflect the enterprise value maximization,thus resulting in the so-called "excessive investment" problem,serious damage to the company value,hinder the development of enterprises.In recent years,domestic scholars have found that over traditional industries,such as cement,electrolytic aluminum,steel and other traditional industries,there is a problem of overcapacity caused by excessive investment.The research on solar energy,nuclear energy,wind energy and other emerging industries shows that the new energy industry also has the phenomenon of overinvestment and overcapacity.Suntech is the first private enterprise to go to the United States and is also the world's largest producer of photovoltaic cells and photovoltaic components.Since its operation,Wuxi Suntech has expanded rapidly,especially the scale of capacity investment,which has expanded 20 times.However,due to the decline of leading product prices,the structural shrinkage of the market and other reasons,coupled with the rapid expansion of business scale,Suntech's financial liquidity has deteriorated,because debt financing has been in a series of crises.In 2013,Suntech finally announced bankruptcy reorganization,which caused a great sensation in China's capital market.Many scholars began to study why the biggest photovoltaic enterprise in China will be bankrupt and rebuilt in a few years.According to the analysis of Suntech's 2005-2011 year financial information,Suntech has a serious problem of overinvestment.This paper,based on the previous research results,combines the case of Wuxi Suntech over investment,mainly from two aspects of case analysis:(1)Analysis of the reasons for overinvestment in Wuxi Suntech: Due to the overheating of the market,the blind expansion of the driving industry,the overconfidence led to the implementation of the blind expansion strategy of management and the three factors of management decision-making errors resulting in the excessive investment behavior of Wuxi Suntech.(2)Analysis of the consequences of overinvestment in Wuxi Suntech: Combined with the current situation and financial information of Wuxi Suntech,the consequences of over investment of Wuxi Suntech are analyzed from three aspects,namely,over investment,over financing demand,market shrinkage,financial liquidity deterioration and debt crisis,which lead to Wuxi Suntech bankruptcy reorganization.This article hopes to give some advice and warning to other enterprises with overinvestment tendency through the analysis of the case of overinvestment by Suntech.Enterprises should fully understand the market,do not blindly expand business investment.It should be based on the actual situation of enterprises,especially the cash flow management to make specific judgments,establish a set of perfect corporate governance mechanism,inhibition of major shareholders and managers over investment behavior otherwise will cause enterprises overcapacity.Eventually,the great losses will bring to the development of enterprises.