An Empirical Investigation Into The Motives And Impact Of The Entrusted Investment Made By China's Listed Firms

In recent years,a large scale of entrusted investment has been made by China's listed firms,which has drawn a lot of attention from the capital market.As an investment tool,entrusted investment is associated with the financing and investing activities of public listed firms as well as their cash management.Thus,understanding the motives and impact of entrusted investment made by those listed firms and modifying their investment behavior accordingly are very necessary in enhancing the operating efficiency of public listed firms as well as the resource allocating efficiency of the capital market.This article tried to explain public listed firms' entrusted investment from the aspect of cash management.Based on the data of all listed firms in the A-share market from 2011 to 2014,we found: 1)Before China's Securities Regulatory Commission(CSRC)loosened up the restriction and began to allow China's listed firms to use their temporarily idle funds from equity financing to make entrusted investment in the end of 2012,the main motive of China's listed firms for making entrusted investments is to increase their cash management efficiency,and financing constraints as well as debt burden can significantly discourage public listed firms from making entrusted investment.But after the CSRC implemented the new policy,large amount of idle funds caused by the prevailing equity over financing became another main reason for China's listed firms to make entrusted investments.2)Due to the difference in the resources of the funds used for entrusted investment,before the policy loosened up,entrusted investment can significantly increase the cash holdings of listed firms,but after the policy loosened up,no significant impact of entrusted investment on cash holdings was detected.3)Before the policy loosened up,entrusted investment had no significant impact on the cash management efficiency of public listed firms,but after the implementation of the new policy,entrusted investment significantly increased the cash management efficiency of public listed firms,and the average cash value spread for those listed firms who had made entrusted investment is ?0.587.Our research proved that the prevailing over financing of China's listed firms caused by the deficiency of China's securities issuing regulation is the main reason for China's listed firms to make entrusted investment.Under the current securities issuing regulation,allowing public listed firms to use temporarily idle funds from equity financing to make entrusted investment can enhancing their cash management efficiency.The key to normalize China's listed firms' entrusted investment behavior is to modify China's securities issuing regulation.