Abstract: Research on the relationship between financial leverage and over-investment, as well as how external governance environment influences the effect which the financial leverage exerts on over-investment has important theoretical and practical significance. In this research, 2251 observation samples in the year 2008 to 2011 from the listed companies in Shenzhen Stock Exchange are selected, for analyzing the relationship among external governance environment, financial leverage and over-investment. Through the empirical research, we find that financial leverage has inhibitory effect on over-investment. And there is a negative correlation between over-investment and local product market competition, information disclosure quality, local degree of marketization, while a positive correlation between over-investment and local government intervention.

Key words: external governance, financial leverage, over-investment