Empirical Research On The Impact Of Corporation Over-investment On Stock Price Crash Risk

Stock price crash is a phenomenon that investors sell their stocks in large quantities due to some reason,thus causing the stock price plummets constantly.Stock price crash makes personal wealth shrink,subdues the enthusiasm of investors and causes a great impact on the entire financial system,and thus seriously hindering the stable development of Chinese capital market.Because of the immature capital market and incompleteness of regulatory provisions,stock price crash phenomenon occurs more often in China compared to well-developed economies.At present,the academic researches of stock price rash risk focus on the perspective of asymmetric information,which means when a company's inside negative information cannot be reached by outside investors in time,t the stock price is inclined to be overvalued,and when the negative information swarms into the capital market,investors begin to dump their stocks,thus leading stock price crash.Investment decision is the one of the most important decisions in the business operation.Every company has its own exclusive capital structure,operating revenue growth,and other different features,so each company enjoys different optimal investment level.Over-investment is the amount of investment exceeds the optimal investment level,which is inefficient,however,the executives of a company can probably get private benefits from it.So there exists the motivation of excessive investment as to executives.In order to conceal the true purpose of the investment,executives are reluctant to disclose the over-investment information at the first time,which results in the asymmetry of information between the inside of the company and outside investors.Over the past 30 years,institutional investors have become an important role in the worldwide capital market.But there is no consistent conclusion about institutional investors can stabilize the stock price or not in the capital market.So the role of institutional investors act in Chinese capital market is also one of the problems that this paper discusses,which helps to understand the interaction between the risk of stock price crash and corporation over-investment under the regulating effect from the institutional investors.This paper's theoretical foundations are principal-agent theory,efficient market hypothesis,asymmetric information theory and behavioral finance theory.On the basis of normative theories research,this paper makes use of the panel data of A shares listed on Shanghai and Shenzhen stock exchange from 2007 to 2015,analyzing the influence the relationship between corporation over-investment and the risk of stock price crash.It also studies how the proportion of institutional investors affects the relationship between over-investment and risk of stock price crash.The final conclusion are:(1)The risk of stock price crash is positively correlated with corporation over-investment.Executives often do not choose to disclose the loss of excessive investment in time,which leads the increase of the stock price “bubble”.As a result,the risk of stock price crash increased.(2)The positive correlation between corporation over-investment and stock price crash risk is significantly lower when the company's proportion of institutional ownership is higher.This shows that the existence of institutional investors in China has reduced the information asymmetry in the market.(3)according to further study,we found that stable institutional investors can significantly inhibit the positive correlation between corporation over-investment and the risk of stock price crash,however the inhibition effect of transactional investors on over-investment and the risk of stock price crash is not obvious.(4)For labor intensive and capital intensive industries,the positive effect between over-investment and the risk of stock price crash is larger by contrast with technology intensive industries.