Marketization,Contagion Effect And Corporate Investmen Efficiency

Since China has entered the period of economic transition,the urgency to solve the problems of overcapacity and low investment efficiency among corporations,academics and policy makers all started to search for an effective way to improve the efficiency of resource allocation as well as the creativity of enterprises.Meanwhile,a series of economic reform measures,characterized by marketization and property right remodeling,have improved the relationship between government and market.These measures has also provided support for factor market,which could in turn,build up to enterprise development,and optimize legal environment for investor right protection.As a result,continuing marketization can help companies improve their investment efficiency.However,in spite of its optimizing effect for the order of capital market,the increase in the degree of marketization caused by changes in macroeconomic policies,has also brought intense competition and complex chain reactions for market entities.It is observed that,this particular reaction is especially effective when certain event of a company or an industry occurs.Academics refer to this linkage,which is based on special events,as contagion effect.Existing research results show that the information asymmetry and the investor’s risk aversion mechanism in the macroeconomic risk system may be the channel of contagion effect.Through these channels,crisis events can spread across different markets.Accordingly,if decision-makers can make rational estimations of the impact of crisis events when such incidents occurs,they may be more capable in adjusting their investment strategies,so that they can improve their investment efficiency.Therefore,marketization process,contagion effect,and corporate investment efficiency,can be put in a theoretical model,where marketization progress enhances corporate investment efficiency,and contagion effect strengthens this enhancing effect.At present,the research on marketization,contagion effect and corporate investment efficiency concentrates on the impact of marketization,the impact of certain improvements in the economic environment on the behavior of corporate investment or fund-raising,the existence of contagion effect across markets,and the influence of contagion effect on corporate behavior.There are currently no studies on the relationship between all three factors.Therefore,after reviewing relevant literatures and examining the data of 469 listed companies on A-share market during 2012 and 2014,this study examined whether the marketization process of 31 regions in China has a significant effect on corporate investment efficiency.Moreover,this study also examined whether contagion effect within industries strengthens the enhancing effect that marketization progress brings to corporate investment efficiency.The empirical results of this study show that,marketization progress can significantly inhibit the inefficient investment made by corporations.When corporations "suffer from"industrial contagion effect,the improvement of government-market relationship and the optimization of legal environment,which both come within marketization progress,can bring even more inhibit effect on the level of corporate inefficient investment.These results are consistent with the hypothesis presented in this paper.In addition,in order to explore the value effect of corporate investment efficiency,this study also run a regression using Tobin Q value as the representative of corporate value.The empirical results of this regression show that,when the degree of marketization is considerably high,industrial contagion effect can significantly improve the value-adding effect of efficient corporate investment.Finally,this paper summarized the conclusions reached in the research.Limitations of the research and evaluations of this its potential use for investors and policymakers were also included in the last part of this paper.