Study On The Impact Of Equity Ownership Structure On Firms’ R&D Investment Behavior And Its Economic Consequences

In the knowledge economy era and today with increasingly competitive market, R&D investment has becoming an important strategic investment decision-making behavior which affect’s enterprise survival and development. Compared with Western countries, China’s R&D investment level is still at a low level which has restricted our ability to innovate and improve technology to enhance the country’s comprehensive national strength. Currently, the research on R&D investment is mostly focused on the relationship between regional economy in a country or district and industrial development at macro level by using National Statistical Yearbook, the overflow of R&D investment from Perspective of Technology and economics, multinational corporation’s investment in china and its impact on the national technological innovation, and the accounting treatment. Since 1958, Modigliani and Miller posed the famous MM theorem, finance experts began to focus on internal corporate governance and performance issues, and they found that ownership structure, debt levels, board structure and other factors have important influence on R&D investment behavior. However, due to the research data and other factors, current research has been inadequate.By using the data of manufacturing and information industry listed companies this paper will study on the relationship between ownership structure and R&D investment behavior and then try to give relative suggestions to encourage enterprise s to increase R&D investment from the equity system design.In this paper, the structure is divided into several parts such as introduction, theoretical foundation, institutional context, empirical research and policy suggetion.The paper is composed of 7 chapters, the research contents and conclusions in each chapter are as follows:Chapter 1: Introduction. This chapter firstly introduces the background of the study topics and research purposes. Secondly, defines the scope of the study and describes the research methods that may be used. Lastly but not least, introduces the features and innovations that writer tries to breakthrough.Chapter 2: related concepts and literature review. This chapter firstly introduces the concept of R&D investment in economics and accounting the disclosure of R&D expenditures. Secondly, it describes the economics of R&D investment analysis of the relevant literature, and then introduces the literature related to R&D investment in economics. Thirdly it summarizes the literature about the relationship between corporate governance and R&D investment. Lastly but not least, it generalizes relationship between the ownership structure and R&D investment and gives a related essential comments.Chapter 3: Mechanical analysis on the effect of ownership structure on corporate R&D investment. This chapter first studies deeply the theoretical basis of the affection of ownership structure on R&D investment behavior by using principal-agent theory, asymmetric information theory and signaling theory respectively. And then analyzes mechanism of R&D investment behavior under different ownership structure.Chapter 4: Analysis existing state of china’s ownership structure and R&D investment. This chapter firstly introduces and comments on Chinese stock market history, and then summarizes the ownership structure and R&D investment. Chapter 5: Empirical study of the relationship between ownership structure and R&D investment behavior. Firstly, this chapter proposes study hypotheses, secondly establishes the appropriate study model. Last, empirically studies on the relationship between ownership structure and R&D investment behavior by using the data of manufacturing and information industry listed companies from 2004 to 2009. The study found:①The relationship between ownership concentration and corporate R&D investment behavior. Overall, there is the obvious weakening firstly and enhancing lastly "U"-type non-linear relationship rather than "N"-type non-linear relationship between corporate R&D investment and the proportion of stock holding of the largest shareholder. This may be due to the difference of internal corporate governance and agency costs when ownership concentration is different, the forms of large holders pursuing private benefits of control changing with the proportion of stock holding, and the facts that the ownership concentration of listed companies generally is higher. However, the relationship between them is different in different ownership companies. The unobvious negative correlation relationship exists in central state-controlled enterprises, the obvious weakening firstly and enhancing lastly "U"-type non-linear relationship between them exists in local state-controlled enterprises, and the obvious positive correlation relationship in non-state-controlled enterprises.②The relationship between equity balance and corporate R&D investment behavior. There is an unobvious relationship exists in ratio of the largest shareholder to sum of the second to fifth largest shareholder and corporate R&D investment behavior which have not through significance examination. That to say, equity balance is null and void. Because R&D investment is not effective and its input-output is low, some listed companies do not think that R&D investment is a very good investment, even thinks that it is to burn money, therefore, they are not willing to carry on the R&D investment. However, the effect of check and balance is different in different of ultimate ownership corporate. Generally speaking, the effect of check balance is unobvious in central state-controlled and local state-controlled company and obvious in non-state-controlled company. Even though currently the absolute number of R&D expenditure in state-controlled company is higher than non-state-controlled company, it is more possible that R&D investment in state-controlled share company is enforcement rather than market-adjusted autonomy. In addition, statistics also shows that number of R&D expenditure state-controlled company is not even more than non-state-controlled company.Chapter 6: Analysis on economic consequence of R&D investment. This chapter firstly gives the definitions to the economic consequence, secondly chooses two or three representative variable, thirdly comes up with the research hypothesis and builds research model according to the research goal. Lastly carries on empirical test by R&D sample that the preceding chapter of institute uses. The study found:①Overall, corporate R&D (absolute and relative) expenditures are correlated positively with Tobin’s Q. The relationship between R&D expenditures and the ratio of operating profit to net assets is not clear. Since Tobin’s Q is equal to ratio of market value to book value which reflects a kind of anticipate and company’s long-term development direction or value. However, the ratio of operating profit to net assets is a reality which reflects the short-term investment value. Thus, the company R&D investment long-term value is very significant; in a long term, R&D investment will help to enhance company value. However, in a short term, the R&D investment value is not clear, short-term value is not reflected easily and recognized by investors, which may be the reason why listed company do not want to invest in R&D. R&D investment will help enhance corporate long-term value. However, the R&D investment short-term value is not clear and not very easy to be recognized by investors, which maybe the reason why the investors don’t want to invest in R&D.②The relationship of positive correlation between corporate R&D (absolute and relative) expenditures and Tobin’s Q is not clear, but the relationship between corporate R&D (absolute and relative) expenditures and the ratio operating profit to net assets is Significant different in different ultimate ownership companies. Specific performance: the relationship between the R&D expenditure and ratio operating profit to net assets in central state-controlled company is significant negative correlation with the increase of the proportion of largest share holder holding share. The relationship between them in local state-controlled company is increased first and then decreased "inverted U" shape and in non-state-controlled company is significantly positve correlation. To some extent, this conclusion confirmed that different ownership companies are quite different R&D investment.Chapter 7: Conclusions and recommendations. This chapter firstly reviews the contents of the previous chapter. Secondly draws a conclusion and gves the countermeasure and suggestion from angle of stockholder’s rights institutional design. The suggestions are as follows:①To change the state-controlled properties of some companies, and introduce market competition mechanism, encourage enterprises to carry out R&D investment;②According to the nature of an enterprise to select a different strategy of adjusted ownership concentration;③Reasonably use governance role of equity check and balance.Other recommendations are:①To further transform the government function, define subject of investment and regulate the investment and financing management behavior of government.②To perfect the capital market and create a fair competitive market.③To strengthen policy support and financial support policies, tax exemptions.④To improve relevant laws and regulations, protect intellectual property rights.⑤To relax the policy imitations and introduce competition mechanism.⑥To improve the corporate governance mechanism and implement stock option plan etc. Looking at the full, the features of this article are:①There are the following characteristics at" the research on impact of ownership structure on corporate R&D investment behavior":1) For the receiving sample data. In order to fully consider characteristics of the disclosed information of listed company R&D investment, this chapter use the disclosed R&D expenditure data in cash flow statement to avoid the impact of changes in accounting standards with Chinese characteristics. 2) For the empirical method. In order to consider fully the factors such as the rich resource of company internal and external system environment, and according to the characteristics of data, by using the proportion of the largest shareholder as threshold variable, and using the threshold model which was proposed by Hansen, Matlab and Stata software, to divide interval and make regression analysis and to avoid subjectivity and potential bias which is caused by artificial dividing ownership concentration and the interval of checks and balances in order to make research convictive and research finding valuable.②There are the following characteristics at"the economic consequences research of R&D investment":1) In order to ensure continuity of data, this chapter continues to use the parallel panel data of manufacturing companies and high-tech industry which was disclosed continuously from 2004 to 2009. 2) In order to ensure continuity of methods, this chapter groups the sample using the threshold value which was counted in the previous chapter, set the sub-element variable, and tests the economic consequence of R&D investment behavior when the largest shareholder is under different threshold interval through the cross term of sub-element variable and R&D investment. 3) Considering the characteristics of the R&D lagged output, this chapter delays a period of the dependent variable to the independent variables. 4) In order to overcome the heteroscedasticity and section related phenomena in research sample data, this chapter Carries on an empirical test using the robust fixed effects proposed by Daniel Hoechle (2007). 5) To choose the same control variables in the previous chapter.The innovations of this article are:①Currently, the research on R&D investment is mostly focused on the relationship between regional economy in a country or district and industrial development at macro level by using National Statistical Yearbook, The micro-level studies are relatively few. Based on the special background of China’s economic transition, from the perspective of ownership structure, this article studies the corporate R&D investment behavior and its economic consequences, and constructs a relatively quite perfect research frame for the relationship between ownership structure and R&D investment behavior, and confirms that ownership structure really is one of the important factors that influences the R&D investment behavior of listed companies under this framework. This article provides a relatively novel research perspective for for the study of corporate R&D investment behavior.②With the characteristics of listed company’s ownership structure in the period of China economic transition, this article analyzes the mechanisms of enterprise investment R&D respectively under the situations that Ownership structure in high concentration or in highly dispersed or in moderate concentration And then collects R&D information by hand from Cash flow statement in the manufacturing and industry annual reports of listed companies who disclosure R&D expenditures information consequently from 2004 to 2009 and then use the data for empirical test in order to explore the deep-seated reasons that Chinese enterprise R&D investment is insufficient and provide a theoretical basis for policy and recommendations. Collecting R&D information by hand can be avoid the impact from the new accounting standards changes③By using the threshold panel model that Hansen (hansen,1999) proposed, this article studies the non-linear relationships between the Ownership concentration and enterprise R&D investment behaviors and manifests the different non-linear relationships under different ultimate ownership by threshold regression analysis which not only can be avoid the subjectivity from the artificial division of the ownership concentration and the bias of selectivity, but also can alleviate multicollinearity that the introduced cross-cutting variable brought about. This greatly improves the stability of test results and the efficiency of non-linear relationship. In the study of economic consequences from R&D investment, this article uses the steady fixed effect law that Daniel Hoechle(2007) proposed to overcome the heteroscedasticity and cross-section related phenomenon that among the data possibly had effectively. By using the data and the threshold value that counted in previous chapter the article effectively avoids the embarrassment for no relevance of two empirical test and makes the research of R&D investment behavior and economic consequences continually as an organic whole and makes the research system more complete.