Research On The Influence Between Board Characteristics And Non-efficient Investment

Financing decision and investment decision are the core business activities of a company. Divided by MM theory, tradition corporate finance theory supposes that financing decision is absolutely independent of investment decision based on complete markets and information symmetry hypothesis. However MM separate principle doesn't tell the truth of the real world. With the development of new system economics such as information economics, principal-agent theory and contract theory, more and more scholars pay attention to the conflicts of interest between relevant beneficiaries and information asymmetry. Modern corporate finance theory deems that enterprise made of a nexus of contracts, so interest conflicts between relevant beneficiaries of a company bring on an agency cost, which may cause non-efficient investment when making investment decisions, including over-investment and under investment.As the core mechanism of the internal corporate governance, board of directors is one of important decision-making and oversight bodies. Standardized and effective board of directors can ensure to implement strategies which maximize long-term interests of the company, and represent the interests of all shareholders. If the board can make decisions and supervise the activities of management level effectively, the company can increase the value to the full extent; on the contrary they may lead to many problems even bankruptcy.Board of Directors as the core of corporate governance, also the knot between stockholders and managers, there is no doubt that it will affect the efficiency of investment decisions. The thesis probes into the relationship between characteristics of board and investment efficiency.For this problem, the thesis firstly probes into the composition of board characteristics including scale, independence, motivation and behavior, and the concept of non-efficient investment including over-investment and under-investment; secondly the thesis theoretically discusses the relationship between these two factors; the thesis thirdly chooses exchange-listed firms which gives IPO before 2004 as the samples, 2004 to 2008 as the research period, referring to the model of Richardson in 2006, to estimate the level of non-efficient investment of the companies, expressed as over-investment and under-investment; the thesis fourthly chooses some indexes that represent board characteristics as arguments, over-investment and under-investment as dependent variables representatively, to conduct the regression between these factors; finally after a theoretical analysis and empirical testing, the thesis draws the following conclusions: Firstly, the phenomenon of over-investment although is not so common as under-investment, the extent of over-investment is more serious; Secondly, the empirical results show that board size and the proportion of directors receiving compensation are significantly correlated to under-investment, while the other board characteristics are not apparently correlated to under-investment; Thirdly, board characteristics are not apparently correlated to over-investment except the proportion of directors receiving compensation.