Since the reform and opening policy, especially the establishment of the Socialist market economic system, the Chinese economy has entered a booming period. For public companies continuously striving for a way to improve their corporate value, they have found that investment is the only way. However, behind Chinese high speed economic growth hidden problems have been gradually exposed, for instance, negative affections caused by over-investment. Blind investment, the capital investment in an unfamiliar industry field, the frequent mergers and acquisitions in today’s market environment and to invest in projects that have negative cash flow can all be seen as typical occurrences in over investment cases. Blind investment, not only can heavy hit a company, and thus cause resource abuse, but it can also bring about negative effects to the economic situation of an entire country. As a company's main activity investment plays a vital role in a company's success, and thus it has obtained widespread and notable attention from both domestic and foreign scholars.
From three perspectives: equity structure, board structure and management features and competence, this study describes the main influence factors of over investment. Then from these three perspectives, with statistical data support, we analysed Chinese real estate public companies over investment activities. Finally, we discussed how a company can make effective investments and established solutions from each perspective.
This study contains five parts as follows:
Part One: Introduction describing the background, significance and research status from domestic to abroad of this study.
Part Two: Features, presentations and influences of over investment.
Part Three: Relationship analysis to corporate management and public company’s over investment.
Part Four: Solution analysis for over investment from a corporate management perspective.
Part Five: Conclusion
With the use of normative research methods,this study describes major influence factors and solutions for over investment. The innovation point for this study is that we analysed over investment focus on one specific industry – the real estate industry, which is a very popular economic subject in our daily life, this gives my study a more realistic significance as it provides a much needed reparability for the reader.
Key words: Over Investment, Corporation, Free Cash Flow, Corporate investment, Agency Problem, Equity Structure