Financing Constraints,Executive Equity Incentives And Over-investment

Investment efficiency is an important indicator of corporate development and has a direct relationship with the interests of shareholders.The separation of management rights and ownership of modern enterprises makes the interests of company managers and shareholders inconsistent.Executives may be over-invested for personal gains,or they may be underinvested due to risk avoidance,which may result in losses to shareholders’ interests.Managers tend to establish "business empire",which tends to use the company’s free cash flow to make excessive investments.Investment and financing,as an important part of corporate governance,are intrinsically linked.Traditional MM theory assumes a perfect market as the premise,the company management will naturally choose an investment project with a net present value greater than zero to increase the overall value of the company.In practice,an imperfect capital market can cause companies to face higher external financing costs when they are financing than their intrinsic financing costs.This causes companies to have financing constraints and external fund providers tend to have stricter supervision.To avoid blind investment by senior executives,debt financing has a certain degree of governance effect.The agency theory believes that the implementation of equity incentives for senior executives can effectively combine the interests of managers with the interests of shareholders,but the effect of the implementation of equity incentives remains to be confirmed by further research.This article adopts 2,453 listed companies of A-shares from 2011 to 2016,a total of 12,209 samples are used for investment efficiency model regression,and 5,453 samples of over-invested enterprises are obtained for empirical verification.Based on our country’s institutional background and national conditions,the impact of financing constraints on corporate overinvestment was regressed according to two sets of samples from state-owned enterprises and private enterprises.The results of the study show that the restraint effect of financing constraints on the over-investment of state-owned enterprises is not significant,and the non-state-owned enterprise group has a significant inhibitory effect.This article further confirms that for enterprises that implement equity incentives,equity incentives have aggravated the conflict of interests between executives and creditors,while at the same time easing the agency issues between senior management and shareholders.Equity incentives have not resulted in the company’s governance environment and investment efficiency.A very good improvement has weakened the effect of financing constraints on the governance of debt financing,and the restraint imposed on the over-investment of companies by the financing constraints is no longer significant.The research in this paper enriches the theoretical results of the effects of financing constraints and equity incentives on corporate investment efficiency.It complements the urgency of improving soft budget constraints in China’s social budget.The article presents the current situation from the perspective of government,business,and society.Need to improve the direction,and review the lack of research in this paper,and put forward future research prospects.This article is based on China’s national conditions to study the relationship between equity incentives,financing constraints,and over-investment,and is more in line with China’s actual capital market research status.