An Empiric Analysis Of The Correlativity Between Enterprise Value And FCF Based On Transportation Industry

Domestic and foreign scholars have made a lot of research achievements on free cash flow,which are mainly detailed on the concept of free cash flow, the use of free cash flow in business valuation and free cash flow hypothesis. However, there is yet no comprehensive discussion on the correlation between the free cash flow of China's listed enterprise and the enterprise value, what's more,there is no analysis of the listed enterprise based on the utility industries which is abundant of free cash flow.China's transport industry is the public utility for the city infrastructure and municipal services, which has many features such as aperiodic, stable business growth, low investment risk and much free cash flow.What is enterprise value of the listed enterprise based on transportation industry which has abundant free cash flow like? Is the method of company's management using free cash flow reasonable? In this paper ,I select the data of China's listed enterprise based on transportation industry after the share reform period of 2006-2008 years, as the sample to study the impact factors on free cash flow and the correlation between free cash flow and enterprise value.In this paper ,I made empirical analysis of the assumptions and models by four methods which are literature analysis, descriptive statistics, correlation analysis and multiple regression analysis, and selected other variables to make robust test for regression results.Through descriptive analysis, I found that the ability to create free cash flow of China's listed enterprise based on transportation industry is very different , and there are lots of differences of the ability to create free cash flow of the enterprises within the same industry. By the analysis of free cash flow impact factors, I found there is a significant positive correlation between free cash flow and net profit growth rate, investment growth rate. Through the analysis of multiple regression model, I found there is a significant negative correlation between free cash flow impact factors and return on assets, return on equity, Tobin's Q. This just proved the Jason's "free cash flow hypothesis" theory, when there are much more free cash flow, managers prefer to invest in low efficiency projects not pay to shareholders, which would be diminishing marginal utility, and do harm to enterprise value.We can see from the results, although China's transport industry is the public utility, has certain exclusive resources, good performance, much free cash flow, and is optimized by investment institutions and investors, yet there are more serious problems of agents of such companies, for the competitive pressures are small, there is generally no shortage of funds, and the managers will not be worried about being removed, so that the managers'will to improve the operational efficiency is not strong, the behavior of misuse of funds will increase, therefore, investors should pay more attention to the agency problem of the monopoly listed companies, and should focus on business value. China's transportation industry is still growing, still needs to increase capital investment to meet the current situation of development of the industry, but to a certain extent, it also shows that there is "excessive investment" behavior in China's listed enterprise based on transportation industry.Finally, to be aimed at above conclusions I put forward the lack of the research from this paper and some policy recommendations ,hoping that they will be helpful to the governance structure, investment structure and future development of China's listed enterprise based on transportation industry.