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Investor sentiment, property nature and corporate investment efficiency

Author

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  • Hongbin Huang
  • Guanghui Jin
  • Jingnan Chen

Abstract

Purpose - – The purpose of this paper is to expand the investor sentiment’s effect on investment efficiency to the layer of “credit financing,” studying whether investor sentiment can affect credit financing level and the inner mechanism of the effect. Design/methodology/approach - – The authors obtain firm-level data from the Shanghai and Shenzhen stock markets and using panel estimation techniques examine whether investor sentiment can affect credit financing level and the inner mechanism of the effect. Findings - – This paper finds that credit financing plays the role of partial media in the process of investor sentiment affecting investment efficiency. Based on the funds increasing effect, with the high-investor sentiment and increasing credit financing, corporations alleviate the financing constraints, but also provide a convenient for the abuse of corporate funds. So, investor sentiment positively associates with enterprises’ overinvestment, while investor sentiment negatively associates with enterprises’ underinvestment. Relying on the particular system background and property right environment in China, this paper finds that investor sentiment has an effect on the overinvestment of state-owned enterprises and the underinvestment of private enterprises through credit financing channel, while it does not function in the overinvestment of private enterprises. The reason of the difference is that under the soft budget constraint in the country, the credit preference of state-owned enterprises and the creditor’s rights management of banks are partially absent. Research limitations/implications - – By fusing the special financial environment and institutional background, this thesis further includes in the analysis frame the difference in governance effect by credit financing between state-owned and privately owned listed companies, and further analyzes the difference in impact on investment efficiency in enterprises of different natures after investor sentiment has affected enterprise credit financing. Practical implications - – This paper has verified the constraint assumption and deepened the research work on bank credit supply and answered practical questions such as whether the banks in the country exercise supervision function over the listed companies and on which kind of listed companies the supervision function plays a more effective role. Social implications - – As an unofficial substitution mechanism, bank-enterprise relationship can elevate the investment efficiency by private owned enterprises. Based on the timely research results on credit financing, reference is provided for private listed companies to utilize investor sentiment to improve its investment efficiency. Originality/value - – This paper has proved the specific path which creates the dual effects on resources allocation by investor sentiment, that is, the intermediary transmission in credit financing, clarifying the mechanism of action by which investor sentiment affects the efficiency of enterprise investment and making incremental contribution to the research of how investor sentiment affects the efficiency of enterprise investment.

Suggested Citation

  • Hongbin Huang & Guanghui Jin & Jingnan Chen, 2016. "Investor sentiment, property nature and corporate investment efficiency," China Finance Review International, Emerald Group Publishing Limited, vol. 6(1), pages 56-76, February.
  • Handle: RePEc:eme:cfripp:v:6:y:2016:i:1:p:56-76
    DOI: 10.1108/CFRI-09-2015-0123
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    Citations

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    Cited by:

    1. Huang Yi & Yang Xiugang, 2018. "Investors’ Sentiment and Enterprise's Non-Efficient investment: The Intermediary Effect of Stock Price Volatility," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 8(7), pages 1-14, July.
    2. Huang Yi & Yang Xiugang, 2018. "Investors’ Sentiment and Enterprise's Non-Efficient investment: The Intermediary Effect of Stock Price Volatility," International Journal of Business and Social Research, LAR Center Press, vol. 8(7), pages 1-14, July.
    3. Hou, Yang & Wu, Manling, 2019. "An empirical study on the influencing factors for the over-investment of Chinese SOEs," MPRA Paper 94839, University Library of Munich, Germany.
    4. Wu, Ziqi & Xiao, Yi & Zhang, Jian, 2022. "Labor mobility and corporate investment—Evidence from a Quasi-natural experiment in China," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 1110-1129.
    5. Xiong Xiong & Chunchun Luo & Ye Zhang & Shen Lin, 2019. "Do stock bulletin board systems (BBS) contain useful information? A viewpoint of interaction between BBS quality and predicting ability," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(5), pages 1385-1411, March.
    6. Eng, Li Li & Fang, Hanqing & Tian, Xi & Yu, T. Robert, 2021. "Path dependence and resource availability: Process of innovation activities in Chinese family and non-family firms," Emerging Markets Review, Elsevier, vol. 49(C).

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