An empirical study on government intervention on corporate investment

The researches on overinvestment problem for domestic enterprise were done which did not consider the institution impact. However, the institution indeed makes influence on the corporate investment. Some researches show that the companies would over-invest more than others which are controlled by the government. Unfortunately, these documents did not explain the causes of overinvestment, which one explanation is that the agency problem is worse in SOE´s. This paper argues that the overinvestment problem may not be triggered by the agency problem, but raise by the government objects. Our empirical results show that SOE´s overinvestment can alleviate the employment pressure, increase the tax revenue for the government. All these are the result of government internalizing his objects into the enterprise. The regression results also show that there is not sensitivity between investment and cash-flow, which is almost found in Free Cashflow Hypothesis literatures. And the debt does not constraint the investment decision. All these show that the overinvestment of SOEs may be not caused by agency problem., these documents did not explain the causes of overinvestment. This study shows that the overinvestment problem may not be triggered by the agency problem but arise because of government objects.