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Does Confucianism Reduce Corporate Over‐Investment? Evidence from China
Author(s) -
Chen Shihua,
Ye Yan,
Jebran Khalil
Publication year - 2019
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/ajfs.12254
Subject(s) - china , investment (military) , institution , agency (philosophy) , business , principal–agent problem , sample (material) , state (computer science) , state owned , market economy , monetary economics , economics , political science , corporate governance , finance , sociology , law , social science , chemistry , chromatography , algorithm , politics , computer science
In this study, we argue that Confucianism, as an informal institution, mitigates agency problems and thus curbs managerial over‐investment behavior. Using a sample of Chinese listed firms over the period 2000 to 2015, we find strong evidence that Confucianism is negatively associated with over‐investment. Furthermore, we document that the negative association between Confucianism and over‐investment is weaker for state‐owned enterprises than for non‐state‐owned enterprises. Overall, the findings enrich our understanding that informal institutions can play a significant role in influencing corporate behavior.