Analysis Of Agency Costs Of Free Cash Flow From Acquisitions Angle

The theory of free cash flow hypothesis was made by Jensen in 1986.He pointed out that corporate managers would prefer putting free cash flow into the lower income projects to paying free cash flow as dividend to shareholders for their own profit.In addition,the agency cost problem can be improved by raising the level of debt.Through testing the short-term gains and long-term performance from merger and acquisition activities of listed companies of China,we verified the existence of the agent cost problem of free cash flow.We analyzed the short-term market reaction and long-term performance for M&A companies through the index--CAR,ROE,EPS etc.we used the event study and regression analysis method.The research sample was from the M&A cases during the year of 2005 in China.The main characteristics:1,a short-term and long-term analysis,make the analysis more comprehensive and objective;2,based on China's practice,focus on the different situation between state-owned enterprises and private enterprises in the field of the cost of free cash flow agent.The main conclusions:1,in the short term perspective,low-growth companies which get high free cash flow can earn more from M&A activities than the high-growth companies which get low free cash flows.2,compared with private enterprises,state-owned enterprises have more serious problem in agency costs.3,the agency cost problem can not be improved by raising the level of debt.Chapter 1:Introduction.This section introduces the significance of this study and background.Chapter 2:Literature Review and theoretical basis.Theory analysis is introduced in this paper from home and abroad.Chapter 3:sample selection and verification design.Chapter 4:An empirical analysis of the process.We make the analysis by market data,financial data,and statistical test method mentioned in the Chapter 3.Chapter 5:Cnoclusion and suggestion.