Convertible Bond Financing,Internal Control And Non-efficient Investment

For a long time,investment has been an important driving force for China’s economic growth.However,high investment growth requires effective investment,that is,funds should be invested in projects with net present value greater than zero(NPV>0),otherwise it may lead to the structural imbalance of the entire national economy and affect the healthy and sound operation of the whole macro economy.However,according to existing studies,the average rate of return on investment of China’s listed enterprises is only 2.6%,with low investment efficiency,which indicates that there may be a very serious phenomenon of non-efficiency investment in listed companies.The phenomenon of non-efficient investment is manifested in two aspects: on the one hand,there is a serious over-investment phenomenon in China’s listed enterprises;On the other hand,cash holdings in listed enterprises are rising steadily and excess cash holdings exist,which indicates that there is a serious under-investment.This means that both over-investment and under-investment have become urgent problems in the investment decision-making of listed enterprises in China.Starting from the non-efficient investment of enterprises,this paper studies the governance functions of convertible bonds,one of the external financing methods,and internal control,one of enterprise internal management.By combing relevant research literature,existing theoretical studies on the role of convertible bond financing and internal control on non-efficient investment governance were summarized.This paper theoretically explains the internal mechanism and transmission mechanism of convertible bond financing and internal control on the two-way governance of non-efficient investment of enterprises.The non-efficient investment of enterprises is divided into two groups:over-investment and under-investment,respectively to verify the governance role of convertible bond and internal control,and conclude that convertible bond and internal control can play a two-way governance role in the non-efficient investment of enterprises.This provides a good idea to manage non-efficient investment for listed enterprises and capital market in China.Based on panel data of all A-share listed companies in Shanghai and Shenzhen from2009 to 2018,this paper sets up a fixed-effect model,and studies the impact on non-efficient investment of enterprises from the perspective of external financing methods and internal control.The results show that there is a general phenomenon of inefficient investment in China’s listed enterprises,in which over-investment is more common than under-investment;As one of the external financing methods,convertible bonds can inhibit the over-investment and under-investment behaviors of enterprises.As one of enterprise internal governance,the internal control mechanism to a certain extent can also inhibit the emergence of the phenomenon of non-efficiency investment,but the effect of internal control governance under-investment behavior is weaker than the effect of internal control governance over-investment behavior;By combining the two governance methods,it is found that the phenomenon of non-efficient investment is better restrained.In order to reduce the endogenous influence of sample selection on the research conclusion,PSM method is also adopted in this paper to minimize the possible influence of sample self-selection.At last,we know from the research conclusion of this article,some policy suggestions are put forward for China’s listed enterprises and regulators.