Enterprise Group Control, Managerial Power And Inefficient Investment

With the entering of foreign companies,China as an emerging market economy faced the competitive pressures gradually increased. In order to enhance the competitiveness of the China’s enterprises and promote China’s economic development,Chinese government learned from Japan and South Korea on the basis of their rapid economic development, began to form enterprise group. According to statistics,by of the end of 2013,the proportion of listed companies controlled by enterprise group up to 66.2 percent on China’s capital market,twice the number of independent companies.This illustrated the important role of enterprise group in our economy, and the necessary of studying enterprise group.According to empirical statistics, enterprise group could provide certain benefits to its member companies. For example, using internal capital markets to ease financing constraints from external capital markets effectively. But could internal capital allocation mechanism able to ensure its member companies effectively using the funds? Dose the investment efficiency increased because of using the internal capital market?Under the modern corporate system, owing to contractual relations, there are multi-agency business relationships. Managers have the right to control the free cash flow. When making investment decisions, for its own sake, managers may put impact on the investment decisions of the listed company, lead the over-investment or under-investment?The paper chooses 2010 - 2013 Shanghai and Shenzhen A-share listed companies empirical data for the study, for a total of 8380 data samples were observed.Based on these, The author chose 8380 sample from year 2010 to year 2013 in Shanghai and Shenzhen A-share, At the same time, by manually collecting and organizing the background of these companies, to define the meaning of enterprise group. Forming the company inefficient investment (excessive investment, lack of investment) measurement formula, setting the appropriate hypothetical model, using multiple linear regression method to test the influence of inefficient investment (over-investment,under-investment) enterprise group caused, and inspected the managerial power played a regulation effect in these relationships.Specifically, in the theoretical research part, this paper through the domestic and foreign relevant fields of the existing literature, analyzed the relationship and mechanism among enterprise group, managerial power and inefficient investment (over-investment,under-investment) from the theory, then proposed the hypotheses of this paper, and built the model of this paper. In the theoretical model, enterprise group is the independent variable, inefficient investment is the dependent variable, and the managerial power is the moderator variable. In empirical research part, firstly, putting forward the relevant variables of descriptive statistics analysis; Secondly, using of Spearman correlation coefficient to detect the linear relationship among the main variables; Thirdly, through multiple regression analysis to verify these hypothesis; Finally, redefined the meaning of variables, changed the sample size for robustness test, to test the empirical results of this paper are reliable. In this paper, implementing empirical analysis and data processing by using of Excel, SPSS 19.0 and Eviews6.0 statistical analysis software.Through empirical testing, this paper found that Whether a listed company controlled by enterprise group or not, will have differences on over-investment and under-investment. Because of agency problems, listed company executives could rent-seeking their parent’s company, which promotes its over-investment behavior,and ease its under-investment behavior. Compared with the independent listed company, listed company controlled by enterprise group has a promoting effect to over-investment,and inhibitory effect on under-investment.In addition, the stronger of managerial power, the stronger of the relationship between enterprise group supporting and over-investment or under-investment, finally, the managerial power as the moderator variable was tested.Based on the theoretical analysis and empirical research, this paper holds that the listed company of China should strengthen the internal funds management, attaches great importance to the enterprise group in the role of investment efficiency. Using of enterprise group’s internal capital market moderately, can ease the fund deficiency of listed companies, improve the efficiency of internal capital allocation, and members of the enterprise group’s investment efficiency. However, if excessive use of enterprise group’s internal capital market, will lead the inefficient investment. In addition, under certain circumstances, shareholders and management have conflict of interest, for their own sake, managers generally make investment decisions from their view, lead to inefficient investment behavior, and if the enterprise controlled by enterprise group, the phenomenon will more serious. The paper’s conclusions have certain enlightenment significance to listed companies controlled by enterprise group strengthen the management of constraints or incentives and reduce the agency cost.