Abstract: On the premise of taking into account the motives and actions of governments at different levels, taking the observed data of 3183 listed companies at Shanghai and Shenzhen stock markets as the samples, this paper empirically studies the micro mechanism of inefficient investment by enterprises ruled by law and regulations and its economic consequences. The results show that compared with the listed companies controlled by central government or not controlled by government, the degree of investment distortion of local government-controlled listed companies is larger. The improvement of rule of law can restrain the inefficient investment by listed companies, which is much stronger in the listed companies controlled by local governments. However, as far as the value influence of corporate investment, whether in the listed companies controlled by the central government or in the listed companies controlled by local government or not-controlled by government, the improvement of rule of law on the efficiency of corporate investment is not ultimately reflected on the increase of corporate value, which indicates that it can only decrease but not eliminate the inefficient investment by the listed companies. Therefore, the improvement of rule of law has a limited effect on the improvement of investment efficiency of China’s listed companies.

Key words: rule of law; government control; inefficient investment