Empirical Research of Investor Protection and Corporate Value
|School||Southwestern University of Finance and Economics|
|Keywords||Corporate governance Investor protection Agency problem Corporate value|
Recent years, investor protection problem is the core problem about the study of the governance of listed company. It is also the basic target of realizing the corporate governance. The existing researches indicate that protecting the interests of investors is the company, even the key of the entire capital market prosperity and development. Investor protection problem is very important, because good investor protection can increase the costs of company insiders and reduce agency cost. It can also enhance the quality and efficiency of the company’s operation and development, ensure the investors’ confidence and raise the company value. The good investor protection is the basis of the stable and sound financial system. The level of investor protection is higher, the financial system is more developed and the ability to resist risk is greater. Good investor protection can complete internal mechanism, consolidate financial system basis, thereby improve the resource allocation and efficiency, and finally promote economic growth.In our country, because of the special equity structure and the incomplete governance structure, coupled with the legal system remains to be perfect, the deprivation of the listed company to investors especially to small and medium investors is still quite serious. The Interests of Investors are mainly affected by four aspects:Firstly, the big shareholders have holding advantages and transfer the listed company’s capital, assets, profits and even the credibility. Secondly, the management of the listed company disclosure false information. Thirdly, the intermediary institutions package for listed company in pursuit of profit and ignore the social service function. Fourthly, the institutional investors use information and capital advantage manipulate stock price. These forms remind us to pay great attention to investor protection problem.Generally, foreign scholars consider that investor protection refers to a set of mechanisms which outsiders prevent insiders to deprive their rights. It forms two kinds of theories:legal theory and contract theory. Legal theory thinks that the law is vital for investor protection. It is the most important factor. Contract theory has its opinion that the law is not important. Investors don’t need the protection of the law, because it can sign a contract with the company to protect their legal interests. The proposal is that using highly centralized ownership of outside investors form the powerful restrictions for management in order to protect investors. More Chinese scholars focus on corporate governance. Incomplete corporate governance structure led to the affected interests of investors. If we want to change the situation, we must complete the governance structure of a company. To solve the principal-agent problem, corporate governance is a kind of mechanism. Through the system arrangement, it can reasonably allocate the rights and obligations between owners and users. Through the shareholders’ meeting, board of director, the board of supervisors and management, we can design the corporate governance to prevent the operators lie to owners and maximize the interests of the shareholders. The complete corporate governance include not only the internal different aspects of governance, it also includes exterior governance. Through the competition mechanism of external manager market, product market, we can restrain the interest’s violations of insiders to outside investors.Because of the different laws, regulations and the different depth of the capital market, although the international scholars’ researches are more mature, they may not apply in our country. Even in the same country and the same legal system, because of the different environments of corporate governance and the different characteristics, different companies have different situation about investor protection. Usual researches treat investors as a whole system research or study the investor protection only from the single aspect. This paper classifies three kinds of shareholders by shares, which are the controlling shareholders, big shareholders and small and medium shareholders. Generally speaking, big shareholder includes controlling shareholder. But in this paper, it refers to the big shareholder except for controlling shareholder. Small and medium shareholder refers to the shareholder who can not control the company and has no right to affect the decision of the company. These three kinds of shareholders not only have difference in the quantity of the share, but also in the difference of qualitative participation. Therefore, this paper is based on the common system environment and tries to construct investor protection evaluation index system on the company level in order to form a more authoritative comprehensive investor protection index and provide objective concrete quantitative index for the different company investors. Meanwhile, this article also wants to research the relation between the investor protection based on the company level and corporate value through the basic problem of the modern corporate governance-agency issues. As is known to all, investors invest a company in order to ensure the basis of asset security and realize the capital profits and appreciation. However, in the competition of the market economy, both the risk and benefit exists. There is contradiction between the safety and profitability of an asset. How to measure the obtained returns of the investment assets? This paper argues that net profit or earnings per share reflect returns too simply, but corporate value is the better chose about comprehensive consideration of the safety and profitability of the assets. Judging from the time value, corporate value includes both the realized value of the company and the value of businesses to own in the future. The former reflects the profitability requirements of assets, while the latter expresses the safety which the assets brought by uncertainties. Therefore, the corporate value can well balance the profitability and the safety of an asset, and then reflects the degree of investor protection. The empirical study on the national level shows that under other invariable conditions, the ratio of Tobin Q and cash flow in countries of good investor protection is b higher than poor countries of investor protection. Therefore, the theoretical analysis and empirical research showed that investor protection and corporate value had close relation. This paper provides feasible operation guide from microcosmic aspect. In a word, this paper is based on the agency problem, build the investor protection index systems through impact factors on different level, and then analyze the relation between the investor protection index systems and the corporate value. Through the theoretical and empirical analysis, we can provide more objective and comprehensive investor protection basis.About the article structure, this paper defined the related concepts to distinguish from the interpretations in the other documents. Then from the existing theories of investor protection-contract theory and legal theory, we review the related literatures and summarize the opinions in this field. In summarizing the predecessors’ investor protection method, we conclude the basis of this study context. The literature review is to provide theoretical background and empirical studies support, In constructing the company level investor protection evaluation index system, this paper divides investors into three kinds, and clearly choose the significant effect factors of corporate governance of investor protection level, thus building the investor protection index system on the company level. After screening the index, this paper uses the related study for reference and chooses the Variation weight method to calculate the index of different investors. In the selection of explained variable, this article doesn’t choose commonly Tobin Q value index, but choose corporate value. Corporate.value’s calculation is obtained through the nonprofit, profitable business growth and share price stability. At the same time, to prevent the effect of other factors except explanatory variables, this paper also introduced asset scale, asset-liability ratio, asset turnover and asset growth rates and industries control variables. Final we build the model of investor protection and corporate value for empirical research in order to provide technical support and model matting. In the sample data, the chosen sample data is from the stock exchange market of Shenzhen and Shanghai, which is non-financial industries and non-ST listed companies. Then we use the statistical software SPSS, Eviews and Excel to carries the unary regression and multiple regression. According to the result of the regression, we made a detailed analysis to verify the research hypotheses. It complied with our expectations. In order to investigate the stability of empirical regression, we carried the agency cost. Through the inspection, we clearly realized the relations about investor protection, agency cost and corporate value. The relationship is stable and reliable. This paper also based on empirical analysis results provides some feasible and reasonable suggestions in order to promote the development of the capital market.Based on the above research, this paper argues that different countries at different levels have different environments. These differences will affect the degree of investor protection. It is based on the agency problem and finally affects the corporate value. Therefore, it is necessary for us to research the relation between investor protection and the corporate value.