The Effects Of Investor Sentiment To The Listed Companies’ Investment And Investment Efficiency

Since the second half of 2014, China’s stock market began to rise. The market index has gone up to more than five thousand points. But the entity economy is not as prosperous as the stock market. Whether the boom of stock market can promote real economy into prosperity becomes a valuable problem.This paper uses Chinese 2006-2014 unbalanced panel data to conduct an empirical research on the relation between investor sentiment, business investment and investment efficiency. It draws four conclusions:Firstly, investor sentiment is positive correlate with the enterprises’business investment. It means that when the investor sentiment is running high the enterprises will increase their business investment.Secondly, comparing the investment’s sensitivities to investor sentiment in having financial constraints company and having no financing constraints company, there is no significant difference. Both of them are positive and have little difference.Thirdly, the cash’s sensitivity to investor sentiment in having financial constraints companies is significantly greater than the companies’who have no financial constraints. When investor emotion is running high, companies having financial constraints will heavily increase their cash to meet the need of investments in the future.Last but not least, most having financial constraints companies are under-invested. High investor sentiment can stimulate these companies’investment but the influence is not large enough to relieve their lack of investment. Conversely, most having no financial constraints companies are over-invested and high investor sentiment will deteriorate this over investment.Therefore, high investor sentiment can stimulate companies’ investment but it can’t improve investment efficiency. So, stimulating virtual economy can not help the market to solve the problems that some industries are overcapacity and some industries are insufficient investment. Solving the unequal allocation of resources needs the government’s adjustment. Using fiscal and taxation policies and industrial policy, the government can guide capital flowing to emerging industries and curb the overcapacity industries’blind investment.The main innovation of this paper is that the study is based on financial constraints. Most previous studies were focused on how the investor sentiment affects companies’investment and its outcomes. They didn’t distinguish whether the companies faced financial constraints. However, companies who have different degree of financial constraints have different investment behavior and investment efficiency. Therefore, the investor sentiment’s impact on these companies’ investment behavior and investment efficiency should be different. This article divides the companies into two groups, having financial constraints and having no financial constraints, and then conducts comparative study. Therefore, the conclusion will be more accurate.The empirical results show that the investment’s sensitivities to investor sentiment in different financial constraints companies do not have significant difference. This result does not match to the hypothesis. Considering the reality of Chinese situation, this paper argues that there may be three reasons, the examination and approval system of issuance, information asymmetry, managers’ conservatism, which hinder the companies having financial constraints increasing their investment drastically. However, due to the limited space, this article has not carried out depth empirical research which is the deficiencies of this article and also the direction for further research.