Manager Power and Decision of Capital Expenditure: Empirical Research from China’s Securities Market

Manager power in the firm is so strength that weakens the effect of incentive pay, and always brings out various negative consequences. So the actual capital expenditure, which could be the engine of firm, is turning into a way for management to fertile ground for opportunism. This paper examines the relationship between manager power and capital expenditure, based on 1356 numbers from 452 listed companies in China during 2008–2010 as sample. We choose the level of capital expenditure as the breakthrough direction to further study the influence. Firstly, We find the bigger power leads the higher level of capital expenditure. Secondly, because the platform effect, the big companies are prone to high level of capital expenditure, and also the size weight has more influence on capital expenditure than free cash flow weight. Thirdly, manager power weakens the sensitivity of free cash flow-capital expenditure, which makes the capital expenditure feasible under insufficient condition of cash flow. Fourthly, manager power also weakens the constraint from debt to capital expenditure, whereas high debt pushes the payment to new level. Finally, compared to private-owned listed companies, the phenomenon above is more obvious in state-owned listed companies.