The Influence of Financial Constraint and Agency Cost on Investment Inefficiency of GEM Listed Firms —–Based on Two-Tier Stochastic Frontier Model
H. X. Wen†, X. J. Liu†*, H. Wang‡, & Y. Caputo§
†Business School of Sichuan University, Chengdu, China,
‡Business School of Shandong Normal University, Jinan, China
§Department of Mechanical Engineering, University of Salerno, Italy
ABSTRACT: In a perfect situation, the investment of a firm can reach to its optimal level which is totally decided by invest opportunity. In reality, however, the actual investment would unilaterally deviate from its optimal level because of defects of stock market as well as agency problem. At present, the most popular theories concerning investment activities are financial constraint and agency cost which are based on Q model. Nevertheless, the measurement bias of Tobin’s Q and the variation of grouping criteria would lead to disagreement in the empirical results. The limitation of previous researches provides us an opportunity to further study the issue of investment efficiency. This paper employed two-tier stochastic frontier model to measure the investment inefficiency of GEM listed firms by combining financial constraint and agency cost, the empirical results show that : (1) The financial constraint had a significant impact on the investment behavior of the listed GEMs in China. Besides, this effect was greater than the agency cost. And the net effect of financial constraint and agency cost lead the investment expenditure reducing its optimal level of 17.9% .(2) Further fractile analysis showed that most of the listed GEMs was under-investment; and only a few number of the listed GEMs was over-investment. (3) The effect of financial constraint and agency cost, as well as the overall net effect had the characteristics of heterogeneity in annual and ownership. Besides, as to the annual differences, the financing difficulty has been eased slightly in 2011,but further policy step is still needed; as to the ownership differences, the degree of investment inefficiency in state-owned enterprises is slightly lower than that of non-state-owned enterprises.
Keywords : Financial constraint; Agency cost; GEM; Two-Tier stochastic frontier model; Investment inefficiency.
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