Analysis Of The Relationship Between Management Equity And Over-investment

Investment is process that investors invest their money in order to obtain the future benefits and transform it into physical form of assets or other assets. Whether the investment is efficiency will affect multiple aspects of the enterprises, such as profitability, whether able to sustainable growth, whether can hold the risks at an acceptable level and the evaluation of its business performance and the expected future operating conditions by the capital market. Over-investment becomes the problem that many corporates are facing because of the problems of entrusted agency. Over-investment is the enterprises managers in order to obtain personal interests and make the enterprises display a growth appearance by their manage, they will be blind to invest or to increase the size of the enterprises, even do not avoid the project that will damage the enterprises value. This may increase the risks of the enterprises, and in finally, will damage the interests of the investors. In this case, there are important meanings on the theory and the practice to research the relationship between the management ownership of stock and the over-investment. On the theory, it will enrich the theories of management ownership of stock and over-investment, and the related theory of corporate management. On the practice, it will help improve the management system of the small and medium-sized companies, and put forward referential suggestions in order to further strengthen the supervision to the capital markets by the supervision department.Based on the research background, the existing research results and the related theory, this paper puts forward the research hypothesis and establishes the empirical analysis models, and using the experience data of the small and medium-sized boards companies for empirical analysis, finally come to the conclusions of this paper and put forward some corresponding policy recommendations according to the conclusions. This paper mainly adopts literature induction combined with empirical research, qualitative research combined with quantitative research, comparative analysis and other methods to research the relationship between management equity and the over-investment in the small and medium-sized boards companies. Firstly, this paper generalizes the related literature of management equity and the over-investment at home and abroad, and sums up into following three aspects:(1)in terms of the causes of over-investment, divided into agency cost, information asymmetry and free cash flow;(2)in terms of the influence factors of over-investment, divided into internal governance factors, political relationships factors and liabilities financing constraints;(3)in terms of the relationship between management equity and over-investment, divided into management equity can inhibit over-investment and management equity can’t curb overinvestment. Secondly, this paper systematically expounds the relevant basic theories, and theoretically analyzes the role of management equity to agency cost and over-investment. Thirdly, combined with the relevant theories and previous research results, puts forward the research hypothesizes of this paper. Finally, in order to identify the over-investment in the empirical part, this paper draw lessons from the practice of Richardson(2006) and selected the small and medium-sized boards companies between the year from 2007 to 2013 to estimates the over-investment level of the small and medium-sized boards companies in our country. In particularly, using the over-investment residual measurement model to regression analysis the selection eligible 2106 samples and calculated the residual error of the regression equation, the residual error which is greater than zero item for excessive investment, a total of 853 samples, accounting for 40.503% of the total samples. Then from the perspective of the relationship between the free cash flow and the over-investment, the relationship between management equity and the over-investment, the effects of management equity to over-investment in state-owned and non-state-owned small and medium-sized boards companies, this paper carries out the empirical tests on the same data by using descriptive statistics, Person correlation analysis and multiple linear regression analysis.Through theoretical analysis and empirical research, this paper argues that:(1) there existing widespread over-investment in the small and medium-sized boards companies of our country;(2) free cash flow is an important source of over-investment of the small and medium-sized boards companies, the more free cash flow they have, the more likely over-investment happened;(3) management equity can inhibit the over-investment behavior of the small and medium-sized boards companies, the higher number of management equity, the lower level of the over-investment;(4) the inhibition effect of management equity to over-investment is difference in different equity nature small and medium-sized boards companies: in the state-owned small and medium-sized boards companies, the inhibition effect of management equity to over-investment is not significant; while in the non-state-owned small and medium-sized boards companies, management equity can restrain the over-investment effectively.