Corporate charter autonomy and firms' investment efficiency

Abstract

In light of the amendments to the new Company Law regarding corporate autonomy, we study the relationship between corporate charter autonomy and investment efficiency, using panel data of Chinese listed firms from 2010 to 2023. We find that corporate charter autonomy negatively impacts firms' investment efficiency, and this result remains robust to various tests. Mechanism tests indicate that managerial myopia, opportunistic related-party transactions, and managerial risk-taking are the channels through which corporate charter autonomy exerts the negative impact. Cross-sectional analyses show that the negative impact is more pronounced among non-state-owned firms, firms with weaker internal control quality, firms with greater managerial shareholdings, or firms operating in environments with weaker external constraints or limited cultural norms. Our research highlights the importance of constraining corporate autonomy and provides empirical support for the role of relevant restrictive clauses added to the new Company Law.