Research On The Effect Of Investor Sentiment On Corporate Investment

The corporate investment decision is influenced by both internal corporate managers and external investors and closely related to the stock market.Corporate investment determines the future performance and profitability of the enterprise and development of real economy.Empirically testing the influencing factors of corporate investment has important theoretical and practical significance to explore the causes of inefficient investment and improve the efficiency of corporate investment.Behavioral finance argues that participants in capital markets have cognitive and psychological biases that limit the rational basis of investment choices.Investor sentiment is an essential factor that influences corporate investment decisions.The current empirical studies investigate the relationship between market-level or firm-level investor sentiment and corporate investment,which based on the single market cycle.Based on a more realistic market environment,it is of great significance to constantly improve the research on investor sentiment to corporate investment.We constructed a composite investor sentiment index for the Chinese A-share stock market by selected the Investor Confidence Index,the number of new investors,the market price-earnings ratio,and market trading volume as proxies for investor sentiment by using Principal Component Analysis,and use it as a proxy for investor sentiment in the macro-market-level.To arrive at more robust conclusions,we selected momentum as the proxy of micro-firm-level investor sentiment.Based on the hypothesis of behavioral finance theory and the data from 2010 to 2016 of listed companies in Shanghai and Shenzhen A-shares,this paper investigates the influence of investor sentiment on the scale and efficiency of corporate investment.Combined with the cycle of China's stock market,we examine the differences in the impact of investor sentiment on corporate investment under different market cycles.We reached the following conclusions:(1)Investor sentiment index constructed in this paper can represent the investor sentiment in China's stock market during the study period,investor sentiment is closely related to stock price,and with the stock market index constitutes a two-way Granger causality.(2)Investor sentiment has a significant positive effect on new corporate investment.With a surge in investor sentiment,companies will increase the scale of investment.(3)Investor sentiment significantly affects the efficiency of investment,positively influences excessive investment,and negatively affects the lack of investment.(4)Affected by the changes in the market cycle,the impact of investor sentiment based on different market cycle on the scale and efficiency of corporate investment is asymmetrical.The empirical test shows that investor sentiment and the stock market cycle are the key factors that influence corporate investment decisions.Therefore,enterprises should constantly improve the corporate governance mechanism and investment decision-making process.In the process of making investment decisions,the environment of the stock market and the investor sentiment should be taken into consideration in order to improve the efficiency of corporate investment.The relevant regulatory departments of the capital market should constantly perfect information disclosure mechanism and strengthen the education of investors,make reasonable guidance to the extreme investor sentiment,thus to promote the steady development of China's capital market,so as to create an benign and orderly investment environment.