The Relationship Between Ultimate Control Right And Underinvestment Of Listed Company

The investment behavior of the enterprise has been a hot issue in academic circles. As the most important method of resource allocation in any company, the investment decision has a direct impact on the manage achievement and profit level, and it will affect the enterprise value maximization at last. In recent years, Chinese security markets have got a rapid development, but lots of overinvestments or underinvestments appear in some companies. Some scholars held a point that compared with overinvestment, there is more general underinvestment in the listed companies of China. Traditional investment behavior research is based on ownership dispersion, and aimed at shareholder-management agency conflict. However, ownership dispersion is not a common phenomenon, especially in Chinese security markets. Many listed companies exist a ultimate controlling shareholders, and the controlling shareholder-no controlling shareholder agency conflict are more serious. As an important part in Chinese economy, Private enterprises are very different from the state-owned enterprises. This is due to the imbalance of Chinese system and the development characteristics of themselves. The paper aims to explore the relationship among the ultimate control right, the divergence of two rights, control method and under investment in the private companies.Firstly, the paper is summarized with some related literatures at home and abroad, then analysis the present condition of the listed companies in China. Secondly, this paper put forward the research hypothesis by analysis the enterprise investment theory, information asymmetry theory and the principal-agent theory. Thirdly, the paper select1862samples form2005to2010as study objectives, with regression analysis by Richardson (2006) residual model, taking regression residual value as under investment variable, then carry on empirical test between the variables and characteristics of the control right. Finally, this paper come to some conclusions:The relationship between the proportion of control right of ultimate shareholder and underinvestment shows interval characteristics in private listed companies, and have the nonlinear distribution of inverted ’N’.Underinvestment are also influenced by the realization method of control right. The divergence of two rights and underinvestment present positive correlation relationship without significantly. Increasing the free cash flow can not ease the underinvestment in private listed companies. According to the above conclusion, the last part of this paper puts forward some enlightenment and suggestions.This paper is helpful to understand the investment behavior in Chinese listed companies, and can enhance the applicability of the explanatory power on existing investment theory. This paper provides a positive impact for Chinese capital market system, and can protect the interests of small and medium shareholders more effectively.