Research On Over-investment And Influencing Factors Of Private Enterprises

Substantial evidence has proved that ownership structure of modern enterprises is concentrated, which exists the ultimate controlling shareholders universally. The feature of ownership structure is that ultimate controlling shareholders can use less cash flow, but could gain more enterprise controlling rights. Private enterprises in our country generally belong to pyramid type of shareholding structure. Investment as an important strategical decision of listed companies, will be directly affected by the influence of agency problems between ultimate controlling shareholders and medium-small shareholders. In this case, investment behaviors of listed companies would often deviate from their optimal investment scale, displaying as overinvestment or underinvestment behaviors.Private economy has become an important part of Chinese market economic systems, and their investments play an important role in the national economy. But in recent years, private enterprise has been found some blind and inefficient behaviors, especially overinvestment. Among private enterprises, separation between control rights and cash flow rights exists obviously, and thus ultimate controllers have both conditions and powers to occupy valuable resources of listed companies, resulting in investing inefficiently. Therefore, research on overinvestment behaviors of private listed companies has profound significance in theory and policy development.Based on the review of domestic and foreign literatures, from the perspective of ultimate shareholders control, using the Shanghai and Shenzhen A-shares datas from2005to2008of Chinese private listed companies as samples, the article empirically studies cash flow rights, divergence between control rights and cash flow rights of ultimate controlling shareholders impact on overinvestment behaviors. And also, the article studies external mechanisms of corporate governance factors impacting on overinvestment behaviors.Statistical results empirically indicate that separation between cash flow rights and voting rights is obvious in private enterprises. Most of private enterprises use less cash flow to control more listed companies.The article also undertakes some empirical tests and gets some useful conclusions as follows. Firstly, the correlation between overinvestment and free cash flow of private listed companies is obviously positive. At the same time, the existence of positive free cash flow is more likely to lead to overinvestment behaviors. Secondly, the relation between overinvestment level and divergence between controlling shareholders’control rights and cash flow rights is positively correlated, which means that ultimate shareholders of private companies may invest Net Present Value less than zero programs against the benefits of minority shareholders and damaging the enterprise’s value. On the contrary, while cash flow rights that the ultimate shareholders hold is higher, overinvestment phenomena of private listed companies is more lighter. The following explanation may be given that ultimate controlling shareholders have higher proportion of cash flow rights, their interests and overall interests of listed companies are becoming more and more consistent and closely contacted, so it could help to slow down overinvestment behaviors. Thirdly, empirical evidence shows that the improvement of external governance environment could inhibit overinvestment behaviors of the controlling shareholders of private listed companies, which means that overinvestment is inversely related to locally healthy investment environment index. The better external governance environment improves, the less overinvestment behaviors will occur.According to research conclusions, the article puts forward some corresponding suggestions. For example, strengthen the supervision of listed companies and guide rational and valuable investment behaviors:improve the information disclosure system and risk assessment system; promote the development of regional market and legal systems and improve macro investment environment.The full text is divided into five chapters concretely:The first part is the introduction. The aim is proposed to the problems solved, including the research backgrounds and significance, overall framework and possible innovation contents. The second part is theoretical foundations and literature reviews. The agency problem is one of extremely important factors that affect company’s investment efficiency. This part firstly proposes the theoretical basis for research, and then collects typically domestic and foreign literatures on shareholding structure, non-efficiency investment. especially on overinvestment, and last carrys out a literature review. The third part is background analysis. The author chooses private listed companies as the study object, introducing the development situations, shareholding structure and over-investment reasons, etc. The fourth part is empirical tests and analysis. The contents include selecting sample datas, proposing research hypotheses and building mathematical models, etc. and then empirical tests are carried out. Last part is to summarize article research conclusions and shortcomings.