Information Disclosure, Institutional Environment And Over Investment

The advance of China’s marketization drives the capital market development in China, which has enhanced the resources allocation efficiency. However, there still exist some serious problems, including excessive production capacity and redundant construction from macroscopic perspective, over-investment on the micro scale etc. Additionally, the problems stated above would result in the phenomena of inefficient investment and invalid investment. Therefore, it is of great importance to do some research regarding to the over-investment. In order to curb the growth of overinvest, we should analyze the reason that how the phenomena of overinvestment generated. Nowadays, the experts in theoretical and practical fields all make their efforts to do that kind of research.The listed company’s information disclosure is the connection of the investors and enterprises. That is, the information users can obtain more sufficient and necessary information from the high-quality information revelation. Also, the information asymmetry and agency cost would be lessen.Information asymmetry, validity of semi-strong capital market and agency conflicts would probably lead to the phenomena of overinvestment in the listed company. Although some policies of improving the disclosed information quality has being launched in Shenzhen Stock Exchange in2001, including marking the degree of disclosed information, the timeliness, relevance and reliability of the revealed information, the overall quality of information disclosure is lower. There are various market processes in various areas in China as China now is in the period of economic transition. Moreover, the various market processes are shown in the form of government intervention, law and finance. This article is going to discuss about whether the government, law and finance development has conducted the information disclosure on overinvestment via a series of historical data in Shenzhen Stock Exchange listed companies. Thus, it can be discussed that the restriction on overinvestment during the period of China’s economic transition. The dissertation will focus on the empirical research about the information disclosure for excessive investment under the China’s mechanic environment. Then, the main content of the article, research findings, brief limitation and prospect would be introduced as follows.Main contents in this thesis as followsChapter1:Introduction. The main content of this chapter is that background, purpose and significance of this thesis, and introduce ideas, method and frame of this thesis.Chapter2:Some related concepts and literature review in this thesis. First. define some related concepts of this thesis. Then, introduce and review the research from domestic and foreign scholars on Over-investment.Chapter3:Some basic theories. Introduce some basic theories about over-investment:efficient capital markets hypothesis, asymmetric information theory and principal-agent theory.Chapter4:Empirical analysis of this thesis. This chapter include deign and hypothesis.Charpter5:Conclusion, limitation and prospects. Enterprises and government can get some recommendations through this thesis. On the one hand, enterprises should improve the quality of information disclosure. On another hand, government may improve institutional environment, such as reduce intervention and improve the legal and financial system.Research conclusionThere exists some excessive investment behavior of listed companies in China. Making the cross term between Tobin Q and free cash flow as an explanatory variable and regressing INV measured in overinvestment activities, we can get the conclusion that the crossing coefficient of Tobin Q and free cash flow is-0.0425at1%significant level. That indicates that the sensitivity of listed companies’cash flow results from excessive investment. Moreover, the Tobin Q and free cash flow at roughly1%significant level will be positive, so there are some overinvestment behaviors in deed.Improvement of information disclosure can curb overinvestment behavior. It can be added three crossing terms based on the model in the first model. The result shows that the coefficient of grade*TQ*FCF is positive with1%significant level. Meanwhile, it indicates the improvement of information disclosure would probably reduce the information asymmetry and enhance the enterprises’ governance; furthermore, the behavior of overinvestment could be lessened.System improvement can restrain the behavior of over-investment. Similarly, it can be added three variables in the first model, for instance, the government intervention level variable, the rule of policies variable and the financial level variable. Suppose the result of variables intersected with the Tobin Q and free cash flow is positive, then, it could be indicated that the environment plays an important part in the enterprises’behaviors of overinvestment. The result shows that the financial level variable is significant among the three variables as the financial level variable intersected with Tobin Q and free cash flow is positive at10%significance level. Thus, it demonstrates that the government intervention and policies cannot restrict the companies’overinvestment; however, the enhancement of financial level could curb the overinvestment behaviors.The development of system can lessen the overinvestment behaviors. The sample can be grouped according to the various variables in the systematical environment. It can be divided into two groups, including the median level of government intervention level and the median level of law as well as the median financial level. Then, the three models can be regressed. The result shows that the lower government interference and policies level can greatly prevent the investors from overinvesting according to the information disclosure, which can explain the point that the development of system can lessen the overinvestment behaviors.The research of innovation and significanceFrom the innovative perspective, there are so many studies on the phenomenon of overinvestment from domestic and overseas.The main reason of overinvestment from inner perspective includes the analysis of corporate governance, debt leverage, information disclosure and managers’ behaviors etc. From outside perspective, the studies concentrate on the impact of the agency, analysts and the investors’ emotions in themselves. Although, there are many studies about the effects of information disclosure on overinvestment, there are seldom some researches on the topic from the difference of China’s particular environment. This dissertation is going to combine the mechanism, information disclosure with the behavior of excessive investment. It is better to select the disclosure data in Shenzhen exchanges and emerge the various levels of governance, law and finance. Additionally, my studies will analyze empirically on the base of the test proposed by Vogt (1994), then, it is obvious that the impact of the disclosure information on excessive investment can be discussed. Finally, the academic literature on overinvestment behavior would be probably enriched after the research.The significance of mature capital markets has attracted numerous investors in China. Especially, the development of venture activities makes capital market more regular in2009. Thus, it is more important to produce some supporting system on investor protection. The research will provide evidence to urge enterprises to improve the disclosed information quality, enterprises’automation and legal environment etc. More important, it will make sense on the protection of investors’ benefit.The research not only provides the evidence but also give guides to investors, for example, the government should respect the companies’ autonomy management, the legislative organizations should complete some policies to protect the investors and relevant authorities ought to separate the enterprise from administration.Limitations and future prospectsThe limitations can be reflected in the following perspectives. First, the dissertation only focuses on the impacts between information disclosure, system environment and overinvestment but ignores the systematical analysis between two variables. Secondly, data resources just come from Shenzhen exchanges, so the data resources are limited. Thirdly, all the factors regarding to the topic cannot be discussed as there are many factors taking the effect on the overinvestment behaviors. All reasons above will limit the financial research outcomes.The relationship of the information disclosure, institutional environment and overinvestment will be discussed in the future more specifically. If there are information disclosure ratings in Shanghai exchange listed companies, the selected samples would be more comprehensive. Meanwhile, the research results could better reflect the facts. Finally, based on state-owned and non-state-owned samples, the analysis of information disclosure and overinvestment can be discussed under the environment of state-owned shares.