Managerial Power,Institutional Investors And Corporate Inefficient Investment:An Empirical Study From The Perspective Of Free Cash Flow

As the micro-main body of macro-economy,the improvement of investment efficiency of enterprises plays a vital role in improving the overall investment quality of society.However,the principal-agent contradiction is inevitable under the modern enterprise system.The power possessed by the executives may acts as a booster for the divergence between management and shareholders' interests,which will adversely affect the efficiency of enterprise investment.Therefore,it is necessary to explore the influence of managerial power on the inefficient investment of enterprises in different situations.Observing the A-share market in China in recent years,the trend of retail investment to institutionalized investment has already taken shape.The regulatory agencies such as the China Securities Regulatory Commission have introduced policies to promote institutional investors to participate in corporate governance,so as to promote the sound development of the capital market.It can be seen that institutional investors,as an important dimension of corporate govermance,may play an important role in restraining executive power and improving the efficiency of corporate investment.According to the above background,this paper explores the relationship between managerial power,institutional investors and corporate inefficient investment by combining normative research and empirical test.Firstly,based on the relevant literature,the logical demonstration of the inefficient investment under the managerial power and the governance role of institutional investors are carried out.Regarding free cash flow as an important premise for executive investment decision-making,this paper considers the impact of managerial power on corporate over-investment and under-investment and regulatory role of institutional investors under different conditions of free cash flow.Then,the author selects A-share listed companies in China from 2010 to 2017 as samples,and conducts empirical demonstrations such as descriptive statistics,multiple linear regression analysis,endogeneity test and robustness test on the hypothesis.The conclusions are as follows:(1)According to agency theory,information asymmetry theory and behavioral finance,the greater the managerial power,the greater the degree of inefficient investment of enterprises.Further,in enterprises with free cash flow surplus,managerial power will increase the degree of investment excess;in enterprises with free cash flow shortage,executive power will increase the degree of underinvestment.(2)Institutional investors can significantly weaken the intensifying effect of executive power on corporate inefficient investment.Further,in enterprises with free cash flow surplus,institutional investors can significantly weaken the excessive investment caused by managerial power;but in enterprises with a shortage of free cash flow,it is difficult for institutional investors to effectively control the under-investment caused by powerful manager.(3)The stronger the independence and stability of institutional investors,the greater the inhibition of inefficient investment brought about by managerial power.The main contributions of this paper are:(1)Using the elements of managerial power and institutional investors in corporate governance system to explain the non-efficiency investment behavior of enterprises is conducive to providing new ideas for the study of external governance factors of investment alienation behavior under the power framework.(2)From the perspective of free cash flow,this paper deeply analyzes the influence of managerial power and institutional investors on the two-way dimension of non-efficiency investment under different conditions of free cash flow,which makes the conclusion richer and more detailed.(3)Specific suggestions for the practice of corporate governance and enterprise capital allocation efficiency are put forward,which has certain practical significance for improving China's capital market governance mechanism,optimizing the financial environment and improving corporate investment efficiency.