Policy Uncertainty Spillover And Firm Overinvestment

The over-investment of enterprises has always been a hot topic in the field of corporate finance.The investment behavior of enterprises is closely related to the external policy environment.When studying the relationship between policy uncertainty and excessive investment of enterprises,existing literatures often assume that each region is independent of each other.However,in fact,each province is not independent from each other,and there is policy interaction between the provincial governments.The policy uncertainty of one province is likely to be infected in the policy interaction between the provincial governments,thus affecting the investment behavior of enterprises in other provinces.First,this paper uses Richardson's(2006)investment model to measure the excess investment rate of 3404 listed enterprises in China from 2000 to 2018.Secondly,this paper uses the policy volatility model of Fatas et al.(2013)to calculate the policy uncertainty of various provinces,and then studies the impact of policy uncertainty on the excessive investment of enterprises and its impact mechanism.Finally,this paper further investigates the influence of spatial spillover of policy uncertainty on the overinvestment of enterprises through spatial econometric model,and examines the mechanism of spatial spillover of policy uncertainty.The results show that:(1)It is true that there is excessive investment in a-share listed companies in China.(2)Policy uncertainty will stimulate companies to overinvest.(3)The information asymmetry between the shareholders and the management and the aggravation of the infringement of the major shareholders on the minority shareholders are the two main reasons that the policy uncertainty stimulates the excessive investment of enterprises.(4)Policy uncertainty has spatial spillover effects.(5)The spatial spillover of policy uncertainty has obvious directivity.(6)The policy uncertainty of other provinces will affect the policy uncertainty of this province and further affect the over-investment of enterprises in this province.(7)Provinces with high fiscal expenditure,low tax revenue and those in the western region are more vulnerable to policy uncertainty in other provinces.