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5159As an important external governance mechanism, the impact of product market competition on corporate governance and investment and financing has long attracted the interest of economists and financial scholars. Although a large number of studies have focused on the economic consequences of product market competition in terms of investment, most of the research methods are based on cross-sectional analysis, such as the investment-investment opportunity sensitive model of Fazzari, et al.（1988）, Richardson’s over-investment model（2006）, the degree of market competition represented by the HHI, Tobin Q model, Sales Acceleration Model, and so on. These studies tend to support that product market competition can improve investment efficiency, but the conclusions lack robustness, and some even have fallacies. Therefore, it is necessary to explore new methods to promote the expansion of research on the economic consequences of product market competition and the influencing factors of enterprises’ over-investment.
In order to further improve the level of opening up to the outside world, China has made a substantial adjustment to the Catalogue of Industries for Guiding Foreign Investment in 2011. Restrictive foreign investment projects have been greatly reduced, and the market access for primary, secondary and tertiary industries has been fully relaxed. This policy provides an ideal quasi-natural experimental platform for us to overcome endogenous problems by using double difference method: （1）With the improvement of opening-up level, the competition level of the domestic market will increase correspondingly（Jiang and Lu, 2018）.（2）The purpose of adjusting the Catalogue is to improve the level of market opening to the outside world, not to affect the efficiency of enterprises’ investment.（3）Enterprises cannot accurately predict the specific time and scope of the adjustment of the Catalogue, which is exogenous.（4）The adjustment scope of the Catalogue in 2011 is relatively large, and the seven industries classified by the CSRC in 2012 are designed as influential models. The impact effect is obvious.（5）The sample period selected in this paper is more balanced than before and after 2011, which is convenient to observe the difference of investment efficiency before and after policy changes. At the same time, in order to overcome the limitations of investment efficiency measurement in previous studies, this paper uses the DEA method to measure the investment efficiency of enterprises.
This paper finds that the improvement of product market competition is helpful to improve the efficiency of enterprise investment. Further mechanism tests show that external market competition can improve investment efficiency by restraining agency conflicts and improving incentive effectiveness. At the same time, for state-owned enterprises and functional enterprises, the improvement of product market competition plays a greater role in improving investment efficiency. The conclusions of this paper have important policy implications: Firstly, the conclusions support the general policy tendency of further expanding China’s opening to the outside world, and the market competition brought about by expanding the opening will play a positive decision-making effect at the micro level. Secondly, they support senior managers’ shareholding policy in the process of mixing reform in China. We should design not only agency cost reduction mechanisms（such as the restraint and check-and-balance mechanism）, but also reasonable incentive mechanisms（such as executive shareholding）, which has positive economic consequences. Thirdly, for state-owned enterprises and functional enterprises, we should introduce or increase industrial openness, increase market competition, eliminate factors affecting market competition, strengthen the role of the market mechanism, and let the market mechanism play an investment regulating role through the product market, capital market and manager market, which will be conducive to the improvement of enterprise efficiency.
