Controlling Persons’ Foreign Residency Rights And Inefficient Investment Behavior

Private enterprises are an important force for promoting national economic development,promoting innovation,increasing employment and improving people’s livelihood.In December 2019,the CPC Central Committee and The State Council issued the "Opinions on Creating a Better Development Environment to Support the Reform and Development of Private Enterprises" to further stimulate the vitality and creativity of private enterprises,promote high-quality development and build a modernized economy.In September 2017,The General Office of the State Council issued “Guiding Opinions on Further Stimulating the Vitality of Effective Non-governmental Investment and Promoting Sustained and Healthy Economic Development”,to encourage private enterprises to participate in key projects such as "Made in China 2025".Investment is closely related to economic growth,and private enterprise investment has become the mainstay of promoting China’s economic development,optimizing industrial structure,flourishing urban and rural markets and realizing steady economic growth.Investment scale and investment efficiency are the indicators to measure the quantity and quality of investment,among which investment efficiency is the key to achieve sustainable economic growth,so it is of great practical significance to study the investment efficiency of private enterprises.Entrepreneurial immigration is on the rise,according to the New World Wealth report,there were about 10000 annually from 2015 to 2017,and up to 15000 in 2018.According to Hu Run Wealth Report 2018,entrepreneurs account for 60% of High Net Worth Individuals,The actual controller of private listed companies discussed in this thesis is the most important part of HNWIs.In 2003,China Securities Regulatory Commission(CSRC)promulgated the Standards on The Content and Format of Corporate Annual Reports Disclosure for Public Offerings,which for the first time required listed companies to disclose the overseas residence right of their actual controllers.According to the annual report,the proportion of private listed companies whose actual controllers obtained the overseas residence right rose from about 7% in 2003 to 15% in 2020.According to the statistics of the sample of private listed companies,the overseas residence right of the actual controller is mainly distributed in Chinese Hong Kong,Canada,Australia,the United States and Singapore.Literature research on overseas residency mainly focuses on the impact of overseas residency on corporate fraud,tax evasion,auditor selection,debt financing cost,technological innovation,social responsibility,cash dividends,cash holding value and so on.Whether the right of residence abroad induces the actual controller to encroach on the interests of minority shareholders.What is the effect of the actual controller’s right of residence abroad on the investment behavior and investment efficiency? Further study is needed.On the basis of summarizing relevant literature,and based on investment theory,agency theory,high-level echelon theory and social identity theory,this thesis studied the influence of controlling persons’ foreign residency rights on the investment decision of the enterprise by using the data of Shanghai and Shenzhen A-shares private listed companies from 2003 to 2030.This thesis mainly discusses the following questions: in private listed companies,does controlling persons’ foreign residency rights inhibit or aggravate the inefficient investment of the enterprise? If controlling persons’ foreign residency rights exacerbates inefficient investment,what is the intermediary route? When institutional environment,market factors,enterprise characteristics and other factors are different,does the influence of overseas residence right on inefficient investment show different results?The research contents and main conclusions of this thesis are as follows:First,the influence of controlling persons’ foreign residency rights on the inefficient investment.The research shows that controlling persons’ foreign residency rights exacerbates the inefficient investment.The model may have endogeneity caused by observable omitted variables,sample selection bias,variable measurement bias,etc.After endogeneity is alleviated by instrumental variable method.We use the nearest neighbor matching,radius and nuclear match,the treatment group and the control group companies outside the residence have similar characteristics,so the problem of sample self-selection bias is alleviated.Second,The influence of controlling persons’ foreign residency rights on the level of overinvestment,underinvestment and long-term investment.The inefficient investment includes overinvestment and underinvestment.Further research shows that the right of overseas residence intensifies the overinvestment behavior,and there is no significant relationship between the right of overseas residence and the under-investment.Due to the limitation of overinvestment measurement model,we continue to examine the relationship between overseas residence right and long-term investment expenditure.The empirical results show that overseas residence right increases long-term investment expenditure.There may be endogeneity problems in the model of overseas residency,overinvestment and long-term investment expenditure.The results are consistent after using instrumental variable method and propensity score matching method to alleviate endogeneity.And the empirical test shows that in the overseas resident right companies,excessive long-term investment expenditure reduces the corporate value.Third,The intermediary mechanism of the actual controller’s right of overseas residence on the enterprise’s inefficient investment.The empirical test of this thesis shows that free cash flow,Short-term lending supports long-term investment are the intermediary mechanisms that the right of residence abroad affects the inefficient investment and overinvestment.Excess cash holding and free cash flow are self-interested tools for the actual controller with overseas residency,companies with overseas residency tend to over-invest through higher free cash flows.As the right of overseas residence increases the risk of default,bank creditors reduce their loans to enterprises with the right of overseas residence.Enterprises with the right of overseas residence tend to make inefficient investment and excessive investment through Short-term lending supports long-term investment.Fourth,the heterogeneity analysis of controlling persons’ foreign residency rights and the enterprise’s inefficient investment.This thesis discusses the heterogeneity of the relationship between the right of overseas residence and inefficient investment from the aspects of institutional environment,capital market factors and internal characteristics of enterprises.Firstly,the regulation mechanism of institutional environment shows that a higher level of market development and a better legal environment can mitigate the positive impact of overseas residence right on inefficient investment,Secondly,the heterogeneity of market factors shows that institutional investors with a high shareholding ratio,analysts with high attention and hiring top four and ten auditors can alleviate the positive relationship between overseas residence right and inefficient investment.Thirdly,the heterogeneity of enterprise internal factors shows that the second kind of agency conflict increases the positive influence of the right of abode abroad on inefficient investment,Higher cash flow right of the actual controller,paying more cash dividends,better internal control,higher independence of the board of directors,and can alleviate the positive relationship between overseas residence right and inefficient investment.Fifth,the economic consequences of inefficient investment in companies where the actual controller has the right of overseas residence.The empirical results show that controlling persons’ foreign residency rights increases the risk level of the company,in which the actual controller has the right of overseas residence,through inefficient investment behavior,excessive investment.The research contributions of this thesis are mainly reflected in the following aspects:Firstly,this thesis provides empirical evidence that controlling persons’ foreign residency rights influences the inefficient investment behavior.Based on high-level echelon theory,agency conflict theory and social identity theory,the actual controller’s right of overseas residence aggravates inefficient investment,especially excessive investment.The surplus free cash flow intensifies the overinvestment,the "short-term borrowing supports long-term investment" intensifies the overinvestment and inefficient investment.Previous literatures studied the influencing factors of enterprise investment efficiency mainly from the perspectives of institutional background,industrial policy,capital market environment and characteristics of senior executives.Based on agency theory and social identity theory,this thesis studies the influence of the characteristics of the actual controller on the investment efficiency from the perspective of overseas residence right,and enriches the literature on the factors of influencing inefficient investment.Secondly,this thesis provides empirical evidence that controlling persons’ foreign residency rights influences the long-term investment expenditure.Based on the high-level echelon theory and agency conflict theory,controlling persons’ foreign residency rights increases the long-term investment expenditure of the company.Compared with the company whose actual controller does not have the right of overseas residence,in the companies whose actual controller has the right of overseas residence,excessive long-term investment expenditure reduces the enterprise value.The existing literature on the right of overseas residence mainly studies its economic consequences from corporate fraud,four major audit,cash holding value,tax evasion,debt financing cost,innovation perspective and social responsibility.At present,there is no research on whether controlling persons’ foreign residency rights affects investment behavior,this thesis extends the research field of overseas residence right to the investment field,and enriches the literature on the economic consequences of the right of residence abroad.Thirdly,this thesis provide empirical evidence that the right of overseas residence improves the level of corporate risk.Based on the upper echelon theory and agency theory.the right of overseas residence aggravates the conflict of interests between the controller and minority shareholders,the right of overseas residence aggravates the conflict of interest between the actual controller and the creditor.Agency conflict induces moral hazard and opportunistic behavior of actual controllers who have the right of overseas residence.The actual controller who has the right of overseas residence tends to make risky decisions.The empirical results indicate that the right of overseas residence intensifies enterprise risk through inefficient investment,excessive investment.It is the first time to provide evidence that the personal characteristics of actual controllers influence enterprise risk from the micro perspective of actual controllers and provide a path through which the right of overseas residence affects enterprise risk.This thesis enriches the literature of factors of influencing enterprise risk.Fourthly,this thesis has enriched the high-level characteristic factors of the highlevel echelon theory.Previous studies focused on the influence of executive characteristics such as managers or directors on corporate behavior.In private listed companies,the actual controller controls the whole company and the management,and the senior executive is essentially the agent of the actual controller.In this thesis,the actual controller with final decision-making power is included in the category of senior management.This thesis discusses the influence of the actual controller’s right of overseas residence on the company’s financial decision,investment decision and risk decision,thus enriches the theory of high echelon.