Corporate Governance, Corporate Investment Behavior And Corporate Performance

Companies are playing increasingly important roles in socio-economic system. Sostudies on corporate governance have caught wide concern from both theorists andsubstantive industry with researches becoming more and more detailed, such as studieson board structure, shareholder participation and independent directors’ remuneration,etc. These studies provide us with valuable empirical data to further improvement ofcorporate governance mechanism. However, less of literatures related to corporategovernance involved by what means does corporate governance affect economicconsequences. Based on the paradigm of “governance mechanisms-behavior-economic consequences”, we try to find out the possible mechanism of how corporategovernance mechanisms have an impact on corporate performance.First of all, we quantify the level of corporate governance, and then we go onfurther study on the relationship between corporate governance level and corporateperformance and the relationship between investment behavior and corporateperformance. Combining with the corporate governance theory, we study the mediatingeffect of corporate governance mechanisms on corporate performance with corporateinvestment behavior as a mediating variable, and we quantify the level of thismediating effect. Our empirical results show that: first, though corporate governancelevel in China is uneven; overall corporate governance level has been a gradualincrease.Second, underinvestment companies in China are more than that ofoverinvestment, but overinvestment is more serious than underinvestment. Third,corporate governance index and corporate performance is significantly positivelycorrelated.What’s more, better corporate governance can alleviate agency problemsbetween management and outside investors and reduce the company’s inefficientinvestment behavior.Besides, inhibitory effect of corporate governance onoverinvestment is better than that on underinvestment. Last but not the least,corporategovernance and investment behavior are factors affecting corporate performance, inthe process of affecting company’s performance, investment behavior is as a mediatingvariable, and it only plays a partial mediating effect.