| Investment is one of the companies' core financial activities. On the one hand,the effective investment activity is helpful to increase the companies' value. On the other hand,it is the source of macroeconomy's growth. But, because the real world does not satisfy the perfect capital market supposition, which MM theory provides, companies are prone to over-invest or under-invest. These two kinds of inefficient behaviors which decrease corporates's value undermine the growth of macroeconomy.This paper employ the principal-agent theory and asymmetric information theory under the perspective of finance. This paper examines whether firms'governance structures are associated with over-investment or under-investment under China's present institutional background.I employ the standard research technique and empirical research technique. Firstly,I review the previous literatures. Then I use the model of Richardson in 2006 to estimate the lever of inefficent investment expenditure and then investigate the effect of corporate governance on over-investment and under-investment.My analysis yields three key findings. First, I find that higher ownership concentration is associated both with higher over- and under-investment. Second, independent directors are helpful to mitigate under-investmet. Third, A balance of power among shareholders and equity-based executive compensation do not have significant effect on over- and under-investment. |
