Research On Over-investment Behavior In Chinese Listed Companies Based On The Free Cash Flow

Investment plays based role in the course of firm's money management, as the most driving force and the base of the future cash flow, and it can affect financing and dividend decisions, so it influences the risk, earning and assement of development direction. Due to the impact of various aspects, such as macro level of economic overheating, imperfect internal governance mechanisms and unbalanced development of institutional environment, causing companies to invest in excess capacity, or deviate from its own and growth opportunities, and to invest in negative net present value of programs, results in the called over-investment problem, ultimately damaging the company's value and hinder their development. Therefore, researching the multiple effects of over-investment behavior and control mechanism, and put forward measures will be needed to achieve.This paper is based on the free cash flow agency theory, the measure of over-investment and free cash draws on foreign research results, and the actual situation in our country made a corresponding adjustment to verify that the relationship between over-investment and free cash flow, corporate governance and the institutional environment in the listed companies.In the paper, after carding the literature on the basis of the definition of over-investment,using listed companies from 2004 to 2008 as samples to test high correlation between investment spending and free cash flow,thereby verified agency problem of shareholders and managers is one of the reasons to inefficient invest and found that listed companies of local government than central government control and non-governmental control serious; On this basis, using the proportion of independent directors, managers holding as a proxy for corporate governance, by building regression models, analysis of corporate governance mechanisms with over-investment behavior, and found that they had no obvious effect on the behavior of over-investment; further using data from the World Bank, including investment environment and government efficiency to analysis the influence of institutional environment on over-investment, and finally to put forward corresponding policy recommendations according to the conclusions.