Abstract | Improving the allocation efficiency of capital and other factors is an important way to realize the transformation of economic growth mode. On the one hand, capital allocation is the core of resource allocation. On the other hand, whether the demand for financial resources can be met determines economic development(Coase,1965). According to the theory of resource allocation efficiency, capital should flow to more efficient business activities to achieve the Pareto optimal of capital allocation (Wang Zhenshan, 1999; He Wentao et al, 2004).
However, the existing literatures on capital allocation only focus on macro-capital allocation and micro-capital allocation, and micro-capital allocation focus on the capital allocation efficiency between firms, various subsidiaries of the diversified firms or the various branches of firms. There is little study on the problem of capital allocation and the causes of capital allocation from the perspective of business activities. With the development of economy, the operation modes of firms become more and more diversified. Capital operation has become an important way in the operation of firms. Investment activities and operating activities have become more and more equal in value creation activities of firms. Domestic and foreign researches have done a new exposition on the concept of business activities that are activities aimed at creating values, including operating activities and investment activities (IASB and FASB, 2008; Wang Zhu-quan, 2013). From the process of capital allocation, no matter how the capital is allocated to each branch or subsidiary, capital must be configured in the business activities in which the firm creates values. The capital misallocation based on reclassification of business activities reduce the efficiency of capital allocation within the company and have a significant impact on the value of companies, thus study on the causes of capital misallocation will improve capital allocation efficiency with in the company.
This paper, based on the empirical analysis of the Chinese A-share listed companies from 2006 to 2015, makes an in-depth study on the causes of capital misallocation from the management decision-making failure and the management prudent decision-making based on the capital misallocation index from the perspective of business activities reclassification. This paper finds out companies with higher differences in corporate performance evaluation system, higher cost of agency, higher corporate financing constraints, lower incentive of corporate management and lower asset specificity tend to have higher capital misallocation. What’s more, this paper further analyses influence path of each causes and regulating effect of second level causes.
Based on the perspective of business activities reclassification, this paper finds out a series of factors that affect the misallocation of capital, expands the research point of micro - capital allocation, and provides reference and suggestion for capital allocation within listed companies. The main contributions of this paper are as follows: (1) This paper, in theory, can make up for the problem that the current financial statements are not clear about the disclosure of specific business activities, which will help firms to analyze the efficiency of investment activities and business activities, and conducive to alleviate the prevalent phenomenon of light investment return and low capital use efficiency in China's capital market. (2) To help enterprises to understand and apply the reasonable performance evaluation system to guide the enterprise's capital allocation and operation investment decision-making, to alleviate the more serious capital misallocation in China's listed companies, to enhance the efficiency of the allocation of the entire social capital.
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