Research On The Impact Of Political Power On Corporate Over-investment

Since the 18 th CPC National Congress,the political power of Communist Party of China has exerted extensive effects on behaviors of micro-enterprise.In order to ensure efficient effects of political power,a special party organization named Discipline Inspection Commission is built in state-owned enterprises controlled by central and local governments by Communist Party of China.The Discipline Inspection Commission of stated-owned enterprise performs a series of functions on behalf of Communist Party of China,including supervising and inspecting managements of state-owned enterprises.The board governance involvement of Discipline Inspection Commission has a significant effects on supervising and inspecting business decisions of enterprise.In recent years,China’s investment rate has been rising year by year,although sometimes it has dropped slightly,but the overall phenomenon of sustained growth.The problem of excess capacity caused by over-investment of enterprises also has started to get prominent gradually.Based on these,under the special background of China,it is of great theoretical and practical significance to study how the Communist Party’s political power can enhance the supervision function of the board and exert a deterrent effect on the management to effectively curb the over-investment of enterprises.Therefore,based on the fact that the Discipline Inspection Commission plays the role of supervision,this paper intends to analyze and explore the link between the Communist Party’s political power and the over-investment of enterprises from the perspective of the Discipline Inspection Commission,and further investigate the differences in different situations,possible influence paths and economic consequences.The structure of this paper is as follows: the first part is the introduction,which introduces the research background and significance of this paper in detail,and reviews the research problems about the economic consequences of Party organizations’ participation in enterprise governance and the influencing factors of investment efficiency in recent years,as well as the research ideas,methods and innovation points of this paper.The second part is the theoretical basis of this paper,which interprets the concepts of political power,over-investment and political connection,as well as the higher-order theory and principal-agent theory which support the hypothesis of this paper.The third part is the theoretical analysis and research hypothesis.It expounds the current situation of the participation of the Communist Party’s political power and the level of enterprise investment.It also discusses how the political power affects the over-investment of enterprises from the independence of the board,multiple supervision and deterrence effect,and investigates the differences of the above-mentioned influence relations in environmental factors such as political connection of the CEO and the attention of analysts,the possible path of influence and the economic consequences,and then put forward the research hypothesis of this paper.The fourth part is empirical analysis.Choosing the A-share state-owned listed companies in China’s capital market from2011 to 2016 as the research sample,this paper uses Stata to empirically test the relationship between political power and over-investment by OLS regression method.The results show that:(1)political power significantly inhibits corporate over-investment;(2)CEO’s political connection and analyst’s attention can significantly promote the negative effect of political power on enterprise’s over investment;(3)political power inhibits corporate over-investment by inhibiting manager’s overconfidence,enterprise’s agency cost,and improving enterprise’s information transparency.(4)Over investment plays a part mediator role in the process of political power restraining the risk of stock price crash risk.From a new perspective that is the board governance involvement of Discipline Inspection Commission,this paper examines the impact of political power on the over-investment of enterprises.It not only enriches the literature on the Communist Party’s political power and over-investment,but also provides a reference for scientific understanding and evaluation of the role and value of the party’s political power in corporate governance and alleviating the problem of market overcapacity.