A Study On The Relevance Of Board Capital, Nature Of Property Right And Inefficient Investment In Chinese Listed Companies

Nowadays, with the acceleration of economic globalization and the upgrade ofeconomy competition, more and more attention has been paid to investment efficiency,which has become an important factor for corporate growth and survival. In China,underinvestment and overinvestment undermined the profitability and growth ofcompanies, and disabled enterprises to meet the optimal allocation of resources. Studyon factors that influence investment efficiency would help companies invest moreeffectively and thus improve business performance.According to resource dependence theory, how well the board accomplish itsroles depends on its members’ ability, this is because the board of directors’ functionis largely influenced by the performance of board members’ supervising, resourcesproviding and strategic consulting accountability. With gradual standardization oflisted companies’ management mechanism in China, information disclosure of theboard provided convenience in research on the Board. Previous research often focuson composition of board directors or board characteristics such as scales, proportionsof independent directors—to study how those perspectives influence investmentefficiency—and rarely involve directors personal capital formed by ability and socialrelationship. Study on the correlativity between board capital and enterprisesinvestment efficiency would enrich domestic research on board capital.This paper explored the correlativity between human and social capital of boarddirectors and inefficient investment among listed companies in China, taking China’sCSI300between2007and2011as samples. Human and social board capital ismeasured by directors’ average age, education, professional background and boardlink, industrial link, political resources variables respectively. Additionally, the natureof property rights is introduced as a moderator variable to analyse how board capitalinfluence inefficient investment between state-owned enterprises and non-state-ownedenterprises with multiple linear regression. According to empirical results, both human capital and social capital of the boardcould decrease inefficient investment level. The Board of Directors provide advice,guidance and counseling for corporate decision-making, thus board with higherhuman capital could better utilize the internal and external opportunity, while higherlevel of social capital contributes to directors’ social net work and access toinformation of external environment change. Accordingly, enhance the board capitalcould reduce inefficient investment, and promote enterprise competitiveness as well.Therefore, listed companies should encourage board directors to strengthen theirhuman and social ability, and choose directors with proper human capital and socialcapital, to optimize board structure and configuration to enhance the companies’governance mechanism.The results revealed that nature of property right has a significant influence oninvestment inefficiency. Embedded with property rights, the influence of board socialcapital appeared significant differences. State-owned enterprises have a higherinefficient investment level, and social capital have a weakened impact on inefficientinvestment. Although the board capital of non-state-owned enterprises is generallylower than those of state-owned enterprises, capital utilization is more efficient.Non-state-owned enterprises use these resources more effective and bring in morebenefits. Consequently, board directors’ ability to affect investment decisions stillrequires improvement in state-owned enterprises. To tackle this problem, we shouldpromote reform in state-owned companies, put forward reasonable propertyincentivity mechanisms, encourage board directors to establish valid and profitablesocial-connection network, thus the board could complete its functions moreeffectively, and improve the efficiency of state-owned capital utilization andinvestment.Results of this essay expanded the perspectives of board capital research inChina, and provided reference for listed company to optimize board construction andupgrade the ability of the board of directors.