Institutional Environment, Government Action And The Change Of Committed Investment Orientation

Investment orientation changes is a major decision in listed companies, butexisting empirical study only analyzed corporate internal factors about the changes.For the transformation of China, the peculiar changes of listed companies must toexplain from the more fundamental and more essence views. This paper, from theinstitutional environment and government actions, expanded the views from inside tooutside, and discussed the paths about the government intervention in the changes oflocal state-owned enterprises and how the changes reduce the corporate value.First of all, by observing the IPO data of the “A” share listed companies from theyear2001to2005, this paper addresses the empirical tests on the impacts ofinstitutional environment, local government intervention and corporate governance onthe change of committed investment orientation. And divide the changes from thecompensatory changes to the prejudicial changes from the company excess industryvalue in the post-5years (the time from2001-2009). The results indicate that in thenon-state owned companies, corporate governance can lower the risk of investmentorientation changes and support the company strategy. However, just working as a“fire wall”, it only can reduce the probability of prejudicial changes in the localstate-owned companies. In the central enterprises, corporate governance would workwhen the local economy and employment is less burdened. Besides, the results alsoillustrate that stronger local government intervention will induce prejudicial changesin the local state-owned companies because of the incentive of “inverted soft budgetconstraint”. But in the non-state owned companies, local government intervention’simpacts are under institutional conditions of constraints. Developed institutionalenvironment could restrain the compensatory changes in the non-state ownedcompanies but the prejudicial changes.Secondly, this paper further to take the local state-owned A share listedcompanies which have investment orientation changes during the year2000to2009as the sample and conducts empirical tests on the impacts of promotion incentives and investment sources on the orientation changes. The results indicate that: in orderto purchase the promotion which based on the increase of GDP in tenure of office, theprobability of orientation changes is higher when the moving average GDP isgrowing slowly; in addition, the government intervention on orientation changes isalso affected by the other investment sources, like volume of loans dropped, whichmay lead to an increase of orientation changes when it is smaller; moreover, if abovetwo problems occur simultaneously, the orientation changes will be more serious.Furthermore study shows that companies’ long-loan can partly share the pressurefrom government on orientation changes when the promotion incentive is smaller;however, the dropped loans can weaken the intervention of government on theorientation changes when the promotion incentive is greater; the orientation changesof provincial and city/county level state-owned companies are affected by thepromotion incentives; and orientation changes in city/county level state-ownedcompanies are more likely be affected by dropped loans; lastly, promotion incentivesand dropped loans have more significant impacts on orientation changes in the regionwhere the marketization is slower.Thirdly，most research on government’s intervention in firms are focused on the"government" rather than "officials", but government action depends on the conductof officials, officials play an important role in corporate behavior. This paper takes thesample of investment orientation changes occurred in A share listed companies whichare local state-owned from the year2001to2009. It empirically examines theofficials’ age, education background and tenure’s impacts on the orientation changesin local state-owned companies. The results shows that: younger age and lowereducation background of officials make the probability of orientation changes larger;accompanying with the tenure increases, the probability of orientation changes has ainvert "U" shape trend; and when the tenure is close to4years, officials’ with youngerage and lower education level are likely to increase the probability of orientationchanges. In addition, the personal features of officials have similar adjusting effectson the relation between holding means and orientation changes. Further research findsthat impacts of official’s personal features on orientation changes vary because of thedifferent officials’ source, office areas and different political level in state-owned enterprises.At the last，The past literatures pay little attention to the invest after theinvestment orientation change, making how the changes reduce the company’ valuebecome a "black box". By observing the data of the “A” share local state-ownedlisted companies from the year2000to2008, this paper from the angle of the investafter the change of committed investment orientation to unlock the "black box" partly.We use promotion incentives, financial incentives and social stability, to build amulti-target government intervention index, and found that when governmentintervention is strong, the probability of investment orientation changes will increase;Company will add fixed investment after the investment orientation change under thegovernment intervention. Further, we found that fixed investment after the change ofcommitted investment orientation is not the key factors affecting the value of thecompany, but the government intervention; under the government intervention, thecompany’s committed investment orientation change and fixed investment will reducethe value of the company, and the investment orientation change is the main way toadd the kind of fixed investment.This study partly reveals the reasons of investment orientation changes and todistinguish the local government’s intervention path on orientation changes in localstate-owned companies, the conclusion provides a new perspective to comprehendthis phenomenon and make relevant regulatory policies. Further, this paper extendsthe government "grabbing hand" to the individual level of officials, which helps us tocomprehend the effects of officials’ individual difference on firms’ microscopic action,and this study partly reveals how the government to take the “grabbing hand” to thecompany, which also help us to deepen understanding on the motivation andeconomic consequences of government intervention.