Overinvestment refers to an inefficient investment decision-making behavior, accepting investment opportunities that are not optimal to the enterprise value, especially projects with net present value less than zero, thus reducing the efficiency of capital allocation. Here, I would like to share with you some countermeasures for over-investment of funds, hoping to help you!

Reasons for over-investment

(1) The owner's financial supervision fails because the principal-agent causes the operator to deviate from the owner's financial objectives.

Under the modern enterprise system of separation of the two rights, the pursuit of personal goals (such as leisure, personal empire, avoiding crisis and high bonuses) by operators will deviate from the financial goals of owners, and the agency conflict between owners and operators is inevitable. For example, managers don't work as hard as they can. Zhan Sen believes that managers may use free cash flow to implement negative NPV projects in their best interests, because they can gain private benefits by controlling more assets (such as placing their relatives, rent-seeking in the selection of project contractors, accepting kickbacks in material procurement, etc.). ).

(B) blind investment caused by the operators' overconfidence in the future prospects of investment.

Some managers' personality traits are too confident, too optimistic about macro-economy and industry prospects, too enthusiastic about decision-making, and the lack of democratization, proceduralization and scientificity of decision-making, which leads to the proliferation of "follow the trend" investment. Hao Ying et al. (2005), based on the perspective of behavioral finance, made a theoretical analysis and empirical test on the realistic performance of overconfidence of executives of listed companies in China and its relationship with investment decisions of enterprises. The research shows that: firstly, about a quarter of the executives in listed companies with equity incentives have overconfidence behavior characteristics; Secondly, compared with moderately confident behavior, the overconfidence behavior of executives is not only positively related to the investment level, but also more sensitive to the cash flow of investment; Third, the cash flow sensitivity of overconfident executives increases with the decrease of equity financing; Fourthly, under the unique equity arrangement and governance structure of listed companies in China, overconfident executives are more likely to lead to inefficient overinvestment in corporate investment decisions.

(C) the owner's financial evaluation and incentives brought about by improper investment scale preferences

In the current performance evaluation and encouragement of enterprises in China, the absolute number of net profit is frequently used, which makes some managers enthusiastic for personal utility reasons. It doesn't matter whether the real rate of return of the project is lower than that required by shareholders. As long as it is greater than zero, it can effectively increase the net profit, thus increasing the personal utility of managers.

The harm caused by over-investment of enterprises not only wastes the valuable capital of shareholders, but also damages the value of enterprises, leading to the decline of enterprise performance.

Analysis on the factors of avoiding over-investment in enterprises

The phenomenon of overcapacity in the industry comes from the excessive investment of enterprises in this industry, which is related to technological competition, environment and other factors. These sissos lure many competitors to compete at the same time. Enterprises must carefully study these related factors when making investment decisions.

1. Technical factors

scale economy

The production capacity of many industries must reach a certain scale in order to achieve better benefits. Economies of scale encourage enterprises to compete to expand production capacity, leading to overcapacity in the industry. If technological progress makes economies of scale more significant, overcapacity will intensify. For example, in the marine transportation industry, technological progress has increased the capacity of tankers with the lowest operating cost from 50,000 tons in the 1950s to 300,000 tons in the 1970s. In order to reduce operating costs, thousands of ocean shipping enterprises have expanded their tonnage, which eventually leads to excess ocean shipping capacity.

technological change

Once a new technology to reduce costs comes out, enterprises compete to invest, and the production capacity of the new technology expands rapidly until the enterprises that use the old technology are squeezed out. Excessive investment in new technologies will also lead to a decline in product prices, making the elimination process more intense. For example, in the late 1960s, with the emergence of low-pressure methanol production technology, the price of methanol per gallon increased from 65,438+27 cents in 0,970 to 65,438+00 cents. In 1969, there were 65,438+06 methanol plants in the United States, half of which went bankrupt in 1973.

Skilled technology

The more products an enterprise produces, the more experienced it is, and the more skilled it is, the enterprise will enjoy the advantage of skilled technology. Such enterprises always want to expand investment as soon as possible, for example, taking advantage of technological advantages. For example, in the electronic memory industry, Japanese manufacturers have invested heavily in expanding their capabilities in order to expand their skilled technical advantages, resulting in overcapacity in the industry.

2. Competitive factors

Capacity share

In some industries, such as air transport, customers' demand for enterprises depends on their capacity share. In foreign countries, airlines with many flights usually occupy a high market share and control shipping prices. This has prompted enterprises to increase passenger planes and flights. If all enterprises do this, it is undoubtedly self-destructive.

New and old facilities

Customers usually like updates. For example, in the hotel industry, customers' preference for modern facilities stimulates hotel owners to build modern luxury hotels, while leisure hotels are caught in the dilemma of decreasing customers and increasing vacancy rate.

Entry of new enterprises

The influx of new enterprises is an important reason for overcapacity in the industry. For example, the entry of Japanese companies has caused overcapacity in the American dynamic random access memory industry. The commissioning of new non-member oil enterprises has put the Organization of Petroleum Exporting Countries into a dilemma. In order to enter the market, new enterprises have stronger investment impulse than old enterprises. If excessive investment triggers a price war and the industry declines, new enterprises will lose new investment. Old enterprises not only increase investment, but also include existing production capacity.

Hide investment intentions

Enterprises don't know each other's investment trends, which constitutes a potential crisis: many enterprises invest in the same field at the same time. Although enterprises can announce their investment intentions through various channels, many enterprises prefer to keep it secret. For example, in the real estate development industry, development enterprises generally do not release development plans, but quietly purchase land to avoid rising land prices. Therefore, several enterprises often build the same building on the same piece of land. Once the land purchase is over and the development plan is open, no one wants to stop, which will inevitably lead to over-investment.

Enter the expected extension

The optimistic degree of enterprises' investment in a certain industry affects each other, which leads to the expansion of investment expectations. What an enterprise cares about is short-term overcapacity. For example, in the semiconductor industry, Japanese companies are willing to endure temporary losses from the concept of long-term profit, and have invested too much in this industry. On the contrary, companies keen on short-term profits will not invest in areas with temporary overcapacity.

3. Other environmental factors

The change of tax and the reduction of bank interest rate will obviously stimulate the increase of investment. The reduction of financing cost and tax revenue is related to the formation of new investment, but it harms the interests of existing enterprises. Because in the case of reduced financing costs and taxes, the value of existing fixed assets will decline.

Government subsidies and restrictions. In order to maintain the level of employment and promote the progress of leading industries, the government often subsidizes new investments in certain industries. For example, the government subsidizes the shipbuilding industry and pushes low-cost and large-capacity tankers to the market. Accordingly, the government will also impose restrictions on certain industries.

Investment decision-making often faces a dilemma: if enterprises do not invest and competitors invest, they lose an opportunity; If everyone invests at the same time, it will lead to the decline of the whole industry. Therefore, enterprises must comprehensively weigh various factors when making investment decisions.

Countermeasures of over-investment

(A) optimize the manager's reward and punishment mechanism

The manager is entrusted by the investor to manage the enterprise and control the assets of the enterprise. Enterprise income is related to the efforts of managers. Under the same conditions, the harder the manager works, the better the enterprise income. Enterprises must design an incentive mechanism to make managers' goals and shareholders' goals as consistent as possible, so as to achieve such an incentive effect: the harder the manager works, the higher the income of managers and shareholders. In other words, the incentive mechanism should weaken managers' self-interest motivation, managers will get more benefits oriented to maximizing enterprise value than private interests, and shareholders' interests will also increase accordingly. The interests of owners and managers are the same, and the supervision of centralized ownership can alleviate the conflict of interests of key stakeholders, thus preventing over-investment. The manager's salary must be linked to the enterprise's performance, and the manager can share the residual income of the enterprise. China's "Administrative Measures for Equity Incentive of Listed Enterprises (Trial)" provides guidance for listed enterprises to implement equity incentive. At present, some enterprises have provided equity incentives to senior managers.

Punishment is a negative incentive, which urges managers to make as few mistakes as possible. As soon as the manager took office, he was required to submit a liability bond. Upon the expiration of the term of office, a certain percentage of the deposit shall be refunded or deducted according to the performance of the contract by the manager and the overall macroeconomic environment.

The rewards and punishments for managers are mainly positive incentives, supplemented by negative incentives. The manager's reward and punishment information should be published in the media to let investors know the manager's ability and performance. This is also a kind of public opinion supervision for managers, which can form a reputation effect. If all listed companies release information about company performance and managers' rewards and punishments to the society, a reputation mechanism will gradually form to supervise managers' behavior.

(2) Optimize the ownership structure and improve corporate governance.

To comprehensively improve the quality of listed companies and curb excessive investment, we must optimize the ownership structure and improve corporate governance. Richardson(2006) made an empirical study by using the data of American 1998-2002 listed companies, and found that the governance structure effectively reduced over-investment, and managers of large enterprises with independent directors were less likely to over-invest.

Reduce state-owned shares and change the situation of "one share dominates". On the one hand, withdraw from competitive industries; On the other hand, introduce strategic institutional investors and dilute the proportion of state-owned shares. The situation of excessive concentration of equity can be changed by vigorously cultivating institutional investors. Institutional investors have the motivation and ability to supervise the operation and management of enterprises. Optimize the ownership structure, reorganize the board of directors, change the situation that major shareholders control enterprises, and curb excessive investment.

The board of directors is the core institution of corporate governance. To improve the corporate governance structure, we cannot ignore the construction of the board of directors. The board of directors cannot become a major shareholders' meeting. Absorbing American experience, the board of directors should be mainly external directors. China's listed companies require the implementation of the independent director system, and the board of directors of listed companies needs more than 1/3 independent directors. In practice, listed companies meet this standard in form, but independent directors are not really "independent" or "sensible". To be "independent", we must start with the nomination of directors; To be "sensible", we must attach importance to the qualifications of directors. The board of directors shall set up an independent director nomination committee to be responsible for the nomination of directors. The qualification certification system of independent directors can be considered. The salary of independent directors is also a problem worthy of serious consideration. Independent directors receive remuneration from listed companies and supervise the operation of enterprises at the same time, which easily leads to the failure of supervision. Regulators can consider setting up a fund for independent directors' remuneration, which will be paid by listed companies in a certain way, so that independent directors will not receive remuneration directly from listed companies, which will help them to play their supervisory functions. After the implementation of the professional qualification certification system, independent directors may also consider raising their salaries. "There is no such thing as a free lunch", and the increase in the salary of independent directors can make them no longer listed directors, but really assume the responsibilities of independent directors.

Whether the project can be launched involves finance, law, market, strategy and other aspects. As an outsider, an independent director can't be an all-round expert, but he or she can make decisions with the help of experts (such as hiring professional firm personnel for screening) to effectively curb over-investment.

(C) the progress of the capital market, innovative financing tools

Financing constraint is one reason for over-investment. Develop the capital market, innovate financing tools, and reduce financing restrictions, thus curbing excessive investment.

It is necessary to lower the threshold for listing and let more qualified outstanding enterprises go public. At the same time, it is necessary to formulate measures to make enterprises with deteriorating performance withdraw from the market in time, which is a punishment for enterprises with deteriorating performance and a warning to other enterprises.

Debt can effectively curb over-investment. Zhan Sen (1986) put forward the "debt control hypothesis", which holds that debt is a substitute for dividends, which can reduce the free cash flow controlled by managers and reduce agency costs. However, China's bank loans are not "hard" for enterprises, and the bond market is underdeveloped, especially the corporate bonds have just started, which greatly reduces the governance effect of liabilities. Although the shareholding system reform of China's state-owned banks has been basically completed, it will take some time to fully market-oriented operation, and the hard constraints of loans should be gradually promoted. The state should strengthen the development of the corporate bond market and change the abnormal structure of the capital market that values stocks over bonds.

(4) Strengthen information disclosure and improve the transparency of enterprises.

Information asymmetry increases the cost of capital, which leads enterprise managers to be unwilling to distribute surplus cash, preferring to stay in the enterprise or even over-invest; Information asymmetry also puts investors at an information disadvantage, increases the cost of supervision and intensifies the tendency of managers to invest excessively. Therefore, strengthening the information disclosure of enterprises and improving the transparency of enterprises can curb the over-investment behavior of enterprises.

On the one hand, government supervision departments should improve the information disclosure system, on the other hand, they should strengthen supervision and urge listed companies to disclose enterprise information truly, timely and completely. Information disclosure must be true, and acts of false disclosure and fraud of investors must be seriously investigated and dealt with. If the information is not disclosed in time, it will lose its effectiveness, which is equivalent to invalid disclosure. Incomplete information disclosure can easily lead to misunderstanding and mislead investors.

The information disclosed by enterprises should also be easy for investors to obtain. This requires enterprises to diversify the carriers of information disclosure and make full use of newspapers, websites and other media.

Enterprise information is fully open, external transparency is high, information asymmetry is low, and the cost of investor supervision is lower, so the enthusiasm of investor supervision will be improved. In this way, investors can choose high-quality enterprises to inject funds, and also correct some irrational behaviors of managers.

(5) Improve the legal system and strengthen law enforcement.

Investors' rights and interests are strongly protected, the risk of infringement of investors' interests is reduced, and investors' confidence is improved, so that the capital market can attract more investment. Law is a powerful weapon to protect the rights and interests of investors. The better the protection of investors' rights and interests, the higher the enterprise value. Enterprises should aim at maximizing the interests of shareholders and treat all shareholders equally and fairly. In view of the managers' self-interest motivation of damaging the value of enterprises and shareholders and the motivation of large shareholders occupying the interests of small and medium shareholders, the law should formulate rules to prevent and crack down on it in order to curb over-investment.

When shareholders think that their interests have been damaged by the manager's behavior, the law can give them the right to claim compensation, and the burden of proof lies with the manager. The interests of the majority of small and medium-sized shareholders are occupied by large shareholders, which allows small and medium-sized shareholders to safeguard their rights through group litigation and entrusted litigation. China has written the issue of major shareholder embezzlement into the criminal law, making it clear that major shareholder embezzlement is a criminal act and a sword to protect the rights and interests of listed companies by law.

Legislation is important, and law enforcement is more important. Act in accordance with the law, abide by the law and strictly enforce the law. Even if the probability of illegal punishment is low, as long as the punishment is severe and the illegal cost is high, it can set an example for others and effectively reduce illegal behavior.