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Excessive investment, capital structure and corporate value -- Empirical Study Based on China's listing Corporation

Author: XuJun
Tutor: HuYuanLin
School: Kunming University of Science and Technology
Course: Accounting
Keywords: overinvestment capital Structure corporate Value listed Companies
CLC: F275
Type: Master's thesis
Year: 2013
Downloads: 17
Quote: 0
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Abstract


In the modern enterprise financial management activities, investment, financing and dividend distribution are three basic activities.What’s more,investment and financing are two inseparable aspects. As principal-agent relationship of the company,information asymmetry,managers overconfidence problems exist, stakeholders conflict (shareholders and creditors,big shareholders and small shareholders,shareholders and manager) is very serious. To a certain extent,it prompts the enterprise investment behavior to deviate from the principle of enterprise max-value.In recent years,in academia,it is still a debate that whether debt financing can effectively inhibit the over-investment behavior of the enterprise and the value of the enterprise.In addition,since the MM theory,the research on capital structure has been continuously,as Myers (1984) puts it capital structure is a mystery.So far,the mystery is still not disentangled and it becomes more complicated because of the analysis of the theory having different decision-making.Therefore,combining the concrete situation of our listed companies,it is given important theoretical and realistic significance to explore further over-investment,capital structure and enterprise value.At first,this paper analyses the relationship of the over-investment motive,the influence of debt financing on investment behavior,capital structure and enterprise value.Then,it defines the concept of over-investment,capital structure and enterprise value,besides putting forward the interrelated research hypothesis.On this basis,using Richardson (2006) residual measurement model,this paper does empirical research about the relationship of over-investment,capital structure and corporate value under the empirical data of A-share listed companies from2007to2011.Its result shows as follows:firstly,there is over-investment behavior in listed companies in our country, meanwhile,over-investment and enterprise value has significantly negative correlation. That means the severer the over-investment is,the lower the enterprise value is.Secondly,the debt financing of listed companies in our country does not curb overinvestment,but exacerbate the over-investment behavior of the enterprise.The asset-liability ratio was significantly positively related with over-investment. Namely, the higher the asset-liability ratio is,the more serious the enterprise’s overinvestment is. Third,if there is over-investment in the enterprise,the increase of the asset-liability ratio will make enterprise value fall further,negatively relating to the enterprise value. Finally,the paper analyzes the important reason of enterprise over-investment and the stale of debt governance mechanism.lt shows the reason is the defect of corporate governance system and the soft constraints of debt,and puts forward the corresponding control measures from macro and micro aspects.

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CLC: > Economic > Economic planning and management > Enterprise economy > Corporate Financial Management
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