A Empirical Study On M&A Of Free Cash Flow In Chinese Listed Companies

In recent years, merge and acquisition has become more and more actively. There is a rapid increase in amount of M&A. But the performance of M&A is not famous. Only few enterprises acquire management superiority and enhance competition after M&A. A great deal of enterprises which were in scrape don't improve the performance after M&A, but even some which were profitable make the performance worse. According to Jensen's free cash flow hypothesis, this paper tries to interpret the M&A activities of listed companies in china and find out the factors affecting company's M&A.The most important of all, this paper verifies whether corporate managers prefer causing the firms to grow beyond the optimal size to paying free cash flow out to shareholders for their own profits. In other words, I verify whether corporate managers incline to over-investment with high level free cash flow. This paper sets up a model to measure abnormal M&A first, and estimate listed companies' abnormal M&A. According to measure the relativity between free cash flow and abnormal M&A, I draw a conclusion that, consistent with agency cost explanations, over-investment is concentrated in firms with high levels of free cash flow. But when free cash flow is negative, the relativity between free cash flow and abnormal M&A is not significant. Further tests examine companies' growth have different impacts on abnormal M&A. I find evidence that companies with low growth and high free cash flow incline to take part in abnormal M&A more than companies with high growth and low free cash flow. Finally, I examine whether firms' governance structures are associated with abnormal M&A of free cash flow. The evidence suggests that certain governance structures, such as the presence of activist shareholders, appear to mitigate over-investment. But other factors such as independent directors' proportion, supervisory committee system and managerial ownership don't have significant impact. This suggests that there are many efforts to make to improve listed companies' governance of china.