A Study On Relationship Between Investment And Profitability Of China’s Listed Companies

Enterprise is the most important micro-foundation of society as a whole,firmsmake investment decisions affect the efficiency of social resource allocation,and itis an important factor affecting the macro and micro economic operation and capitalmarket activities.Domestic and foreign scholars analyse many variables affectinvestment and profitability respectively such as capital structure, cash flow,investment opportunities and corporate governance,but the direct relationshipbetween profitability and investment has rarely been to get involved.It’ll has aimportant theoretical and practical significance to research the relationship betweeninvestment and profitability in view from corporate governance,and makeconstructive suggestions to the development of Chinese enterprises process in ourspecial background.This paper first describes the status of investment spending and profitability oflisted companies in China, proposes theoretical assumptions of relationshipbetween investment and profitability based on domestic and foreign research theory;Further, set a sample of China’s Shanghai and Shenzhen A-share listed companiesbetween2006and2010to construct a linear model proving theoretical assumptions;Finally, based on the results of theoretical and empirical analysis,makedevelopment proposals to investment and profitability of listed companies.In this paper,results show that: There are a significant "N-type"relationshipbetween investment spending and past profitability of listed companies, that iswhen the past profitability of listed companies is strong, as profitability of listedcompanies enhance, investment spending increase; when past profitability of listedcompanies is low, companies will reduce investment spending as profitabilityenhancing; when operating results of the listed companies in the past is too low,investment spending will increase in the performance of past profitability of listedcompanies enhancing.Besides,Investment spending can improve profitability andincrease the value of companies, but inefficient investment behavior could causenegative effects on profitability, and relative to non-state-owned enterprises,non-efficient investment behavior has smaller impact on profitability instate-owned enterprises.With the increase in the share proportion of large shareholders, the susceptibility between inefficient investment and profitability isweaked in a certain degree.