Research on Corporate Governance and Constraint Mechanism of Over-Investment Behavior by Listed Companies

Possible factors to constrain China´s over-investment have been analyzed and related assumptions been proposed. The behavior of over-investment of the listed companies in China and strategies of its constraint mechanism have been analyzed carefully by constructing related models on the basis of previous experience and the actual situation and by an empirical analysis with collected data in 2006-2008 from China´s listed companies of A share as the study sample. The following results have been obtained from the analysis: (1) Some listed companies in China commit over-investment and the amount of over-investment shows a positive correlation with the flow of the company´s free cash; (2) Over-investment by the listed companies could have been effectively restricted if there were some big non-state shareholders, or independent directors or managers owned some shares of the company; (3) The largest share proportion by the shareholders, equity concentration, ownership restriction, separation of chairman and general manager, and Managers´ executive compensation salaries did not effectively restrict companies´ investment behavior. Our findings have important implications for restricting over-investment and for corporate governance.