Research On Influential Factors Of Over-investment Of Manufacturing Listed Companies

In recent years, Chinese economy keeps a rapid growth. And investment plays animportant role in the development."Hot invest"phenomenon appears in some industries andregions with the rapid growth of investment."Over-investment"of the microscopic level hasbecome the focus of attention of academic problem. Over-investment is an inefficientinvestment behavior with negative net present value, which decline in enterprise value beyondits own capabilities and growth opportunity. Excessive investment can result in waste ofresources and restrict the sustainable development of the economy. Manufacturing is a pillarindustry of the national economy, and the investment of it accounts for about a third of thetotal investment amount of the whole society. In 2009, the National Development and ReformCommission released"Some Opinions about Reducing Excess Production Capacity andRedundant Construction in Some Industries to Guide the Healthy Development of Industries",and explicitly pointed out that blind expansion phenomenon appeared in the steel industry,cement industry, chemical industry, etc which belong to manufacturing. So the problem ofinvestment efficiency in manufacturing companies cannot be neglected, and it is necessary totake a further study on over-investment.Based on the research of national and foreign scholars, this paper finds out the factorswhich affect over-investment of listed manufacturing companies in China. First of all, thispaper analyzes the overall investment situation of manufacturing companies, and makes anempirical test on 365 listed manufacturing companies with the model that Richardson used in2006. The empirical result shows that 34.06% of the manufacturing companies have excessiveinvestment behavior, and more than 40% of the new investment is used to excessive. Soover-investment phenomenon is more serious, and the investment efficiency is low. Second,the paper takes the companies with over-investment as samples; test the applicability oftheory of over-investment in China and indentify the significant affecting factors ofover-investment. The results show that: (1) there is a positive correlation between free cashflow and over-investment; free cash flow hypothesis is confirmed. (2) The correlationbetween the long-term liabilities and over-investment is positive; the correlation between theshort-term liabilities and over-investment is negative. Asset Substitution Effect and DebtConstraining Effect both exist in manufacturing companies, but Asset Substitution Effect isstronger. (3) Managerial ownership can not curb excessive investment, the concentricity of thestock and the natures of the shareholders also have no obvious influence on over-investment.Finally, combined with empirical research findings and conditions of our country, the paperconcludes some policy suggestions to inhibit over-investment behavior of Chinese listedcompanies.