Government Intervention, Pyramid Structure And Over-investment On State-owned Enterprises

At present, with China’s economic reform and in the transition period, investment plays an important role as one of the three major engines of economic growth. That is why a lot of capital to be used for invest, but the efficiency of investment has not kept pace with business growth and even contrary to it. The presence of Chinese enterprises are often labeled "investment hunger","expansion drive" and other irrational label.According to research at home and abroad, business investment is not limited to the issue of non-efficiency of the company’s financial decision-making, it is largely rooted in inadequate institutional arrangements. On one hand for the period of the Chinese economy in transition,on the other hand the process of economic reform and political reform process is not synchronized, the agency did not establish a system of state ownership, government intervention in the economy is still more serious.The reform of government decentralization makes government has a much stronger motivation to intervene in corporate investment activities, especially those state-owned enterprises which within the scope of the powers of jurisdiction. As a result, the possibility of state-owned companies’investment also will increase occurred. State-owned enterprise plays a large proportion in the national economy, and holds an important resource for the people’s livelihood. Therefore investigate the influence of government actions on the economy is actually explore the main influence and role of government-owned enterprises play. This research has important practical and theoretical significance.Specifically, this paper carried out the following aspects of this research work and get relevant conclusions.Firstly, this paper works on the specific impact of excessive government intervention in the investment behavior of state-owned enterprises. Studies have shown that with the increase in the number of local listed companies, the average level of local government intervention of the respective companies weakened. That means enterprise relations with government is diluted, over-investment problem has been significantly decreased. At the same time, local government authority for the allocation of resources over the size of the enterprise investment behavior had a significant impact.Further, under China’s current institutional environment, economic development and regional imbalances, the market process is not synchronized, the extent of local government intervention in the economy was showing regional differences, In particular, government and enterprise are not really separated in some underdeveloped areas. Even if government intervention to force overinvestment is same,but also show regional differences, In the high degree of market areas, the level of government intervention led to over-investment is significantly lower than the low degree of market areas.The pyramid holding structure is used for government to control those state-owned enterprises. Consequent problem is that what is the true transmission power of pyramid structure plays between the government’s intervention and those stated companies. For the study of these issues, this paper start to explore the mechanism of pyramid structure instate-owned enterprises. The study found that the presence of "U-type" curve relationship between the state-controlled listed companies pyramid levels and overinvestment. In fact, this is accord with state-owned enterprise’ governance structure when it after reform, that is super administrative control, but weak control over property. The study found the actual investment decisions of these state-owned companies are the game equilibrium of Government intervention and internal control.The ultimate purpose of the article is to find some solutions ideas to locate some ways to alleviate the problem of over-investment in state-owned enterprises. In order to guide the investment of state-owned enterprises benign, at first we’d better improve the basic system in China, for example to improve the legal system, property rights protection system and supervision system, etc. Let our system environment can be like a mature market economy to control insider control agency problems. At this time, Government can appropriately decentralized control, so that in a modern enterprise system SOE benign operation.