Conclusions
As one of the main focuses of major financial theories, investment is an important part of enterprises’ development and the macro-economy. Previous studies show that inefficient investment is common in Chinese listed companies. How to improve corporate investment efficiency is a practical problem that urgently needs a solution. Many studies have argued that corporate investment depends on two basic types of agency conflicts. However, in transforming markets (Stulz, 2005), the agency conflict between government and enterprises also plays an important role in enterprises’ investment decision-making. As trust is the lubricant of a social system (Arrow, 1974), government integrity can also have an important and positive effect on corporate investment. However, few studies have examined corporate investment from the perspective of government integrity. Based on China’s institutional background, we investigate the relation between the investments of listed companies and government integrity from the informal system perspective. We find that government integrity is negatively correlated with inefficient corporate investment. Higher government integrity is associated with less corporate underinvestment. However, government integrity has no obvious effect on overinvestment. In terms of types of share ownership, the negative relationship between government integrity and corporate investment is significant only in non-SOEs. There is no convincing evidence to prove that government integrity is significantly related to the investment efficiency of SOEs. Furthermore, we find that the positive relationship between government integrity and investment efficiency of enterprises lies mainly in industries with supportive government policies.
