The Study On Impact Of Investor Sentiment To Corporation Investment

Economic literature and theoretical logic have proved that both over-optimistic and over-pessimistic sentiments of investors in the capital market would cause stock prices to significantly deviate from their true value and probably have a real effect on the company's physical investment. However, following the general analysis logic of corporate finance, existing research on investor sentiment and corporate investment stresses on investor sentiment, view investment decisions as managers'rational response to mispricing in the capital market, and overlook the fact that managers with limited rational and the institutional environment may interfere with and influence the effect of irrational psychological factors on decision-making.To be close to the more real capital market and follow the analysis logic and research perspective of Shleifer (2003), Baker et al. (2004), and Montier (2007), this dissertation thoroughly abandons the "perfectly rational hypothesis" and incorporates limited rational investors and mangers into the same framework. With reference to social psychological theories, such as theories of social influence and cognitive dissonance, affective generalization hypothesis, and the cognitive evaluation theory of emotion, and in combination with the institutional background of government control in the Chinese capital market and the institutional equity holding characteristics, this dissertation theoretically and empirically explores the functioning mechanism and economic effects of investor sentiment on corporate investment.It falls into seven chapters. Chapter one is an introduction in which the author proposes the research issue and its significance and defines core concepts concerned, followed by a description of the research thought, content, and methods as well as the innovative points. Chapter two is concerned about a literature review based on which the author portrays the evolution path along which sentiment affects decision-making from the perspectives of decision-making psychology, economics, and finance. In this section, the author also reviews the status quo of and new developments in research on managerial optimism and corporate investment, and illustrates the research perspective in combination with the institutional background in the Chinese capital market and latent hypotheses of existing literature. Chapter three proposes the hypotheses in terms of functioning mechanism and economic effects from the perspective of social sentiment affecting individual psychology and decisions based on the institutional background of the Chinese capital market and latent hypotheses of existing literature. Chapters four, five, and six conduct a positive test and analysis of the hypotheses proposed in chapter three. Chapter seven concludes the major findings and points out the limitations and future research direction of this dissertation.This dissertation draws major findings as follows:(1) Investor sentiment has a positive effect on corporate investment and is a real driver for corporate investment. Taking into consideration equity financing channel and rational catering channel, investor sentiment may have an indirect effect on corporate investment by shaping managerial optimism or pessimism. Such finding shows that there exists a "third road" along which investor sentiment affects corporate investment in the real capital market, i.e., the "intermediate effect channel of managerial optimism".(2) Compared with that in non-government-controlled listed companies, investor sentiment has a weaker effect on managerial optimism in companies whose ultimate controller is the government, which results in a lower effect of investor sentiment on corporate investment. Such finding shows that during the process of psychological factors such as investor sentiment and managerial optimism affecting investment decisions, the government controlled institutional environment does, play an adjustment role. However, this dissertation fails to find out robust evidence able to support the above-mentioned adjustment role of institutional equity holding.(3) Investor sentiment has a two-sided economic effect on corporate investment. Over-optimistic investor sentiment has a significant "deterioration effect" on overinvestment of listed companies and a significant "correction effect" on underinvestment. Further study demonstrates that compared with that in non-government-controlled listed companies, investor sentiment has a weaker positive correlation to overinvestment and a weaker negative correlation to underinvestment in government controlled companies. The effect of investor sentiment on performance of listed companies is manifested in a process of "positive effect--negative effect--gradual decline", suggesting investor sentiment often has a short-term positive effect on capital allocation which makes the company faced with an unfavorable situation under which its long-term value may be destroyed.This dissertation is innovative in terms of the following aspects.(1) To be close to the more real capital market, this dissertation incorporates limited rational investors and mangers into the same framework. Through theoretical and empirical studies, it creatively proposes and has proved the "intermediate channel of managerial optimism" through which investor sentiment affects corporate investment. This expands the research paths of theories of behavioral corporate finance, enriches literature on the functioning mechanism of investor sentiment affecting corporate investment, and answers the basic theoretical question of how individual psychology and decisions (managerial optimism and the ensuing corporate investment) are affected by social influence (investor sentiment).(2) This dissertation embeds the government controlled institutional factor into the "intermediate channel of managerial optimism" through which investor sentiment affects corporate investment, an analysis paradigm consistent with that North studied economic performance through a combination of cognitive psychology factor with the institution. This is contributive for us to have a better understanding of how institutional factors interfere with and influence the effects of irrational psychology factors on decision-making and is of certain reference value for the research paths by which to expand and integrate modern finance theories.(3) It follows from theoretical analysis and empirical study that investor sentiment has both a "deterioration effect" and a" correction effect" on the resource allocation efficiency, and the effect of investor sentiment is manifested in the process of "positive effect--negative effect--gradual decline". This proves for the first time the warning of Baker et al. (2003) in the Chinese capital market:investor sentiment influences corporate investment but does not necessarily lead to inefficiency of resource allocation.