Agent problems in investment project evidence from China’s stock market

Previous studies on agency theory indicate that the managers can be opportunistic and expropriate shareholders wealth when external shareholders delegate direct control to managers. This paper focus on agent problem in investment project of IPO companies in China, and classify IPO companies into two parts: the company changed original investments project, and the company did not change original investments project. The results show that the difference of cash ratio; net profit growth and liability ratio achieve statistical significance in 2004. The company with more cash unused or low net profit growth will change the investment project for higher returns. The study confirms that the agent problem exists in investment decisions in 2004.