State-controlled, Free Cash Flow And Enterprise Sustainable Growth

The state-owned economy takes a very important role in China’s national economy.The state holding companies as the main organizational form of state-owned economy cannot be ignored in China’s economic development process. But in China, state-ownedenterprises’ inefficient is a common problem over the past few decades. Throughunremitting efforts, China’s state-owned enterprise reform has made great achievements,but some deep-seated problems and contradictions still not been effectively addressed.Corporate sustainable growth is a long-lasting global topic for Chinese enterprises, is also aproblem with a strong Chinese characteristics. Sustainable growth of enterprises is agrowing witch reflects the coordination of internal resources and external environment’adaptability. To evaluate the state-controlled enterprises’ sustainable growth capacity canhelp state-owned enterprises to promote technological progress, and thus improve thestate-controlled mechanism. Therefore, the study of state-controlled enterprises forsustainable growth, and promote the sustainable and healthy development is the main topicof this article.In this paper, we review the literature systematically, use free cash flow as a researchstarting point, combine the standard research and empirical research methods, along the"Background-Theory and Literature Review-Empirical Analysis-Empirical conclusion",study the topics " state-controlled, free cash flow and sustainable growth " deeply andcomprehensively.In this paper, we use2008-2010Shanghai A-share data and empirical model to studystate-controlled, free cash flow and sustainable growth’s relationship. We have gotfollowing conclusions. First, the company’s free cash flow and sustainable growth rateswere positively correlated, that is, the larger corporate free cash flow, the highersustainable growth rate is. That is because the free cash flow provides a fundamentaldriving force of development and growth for the company. Second, for state-controlledcompanies, free cash flow and sustainable growth rate showed a significant negativecorrelation. The reason why we get the opposite conclusion with all the companies is theserious state-controlled company’s free cash flow agency problems. And the higher thestate-controlled rate the more remarkable of negative correlation between sustainablegrowth and free cash flow. Finally, the state-controlled company’s sustainable growth rateis lower than the non-state-controlled enterprises. Complex agency relationship tostate-controlled enterprise lead to ambiguous property rights, high agency costs and a lowsustainable growth rate. In addition, government officials are not professional managers, they do not have enough expertise, and management ability is not strong, which is anotherimportant reason for the state-controlled enterprises’ low capacity of sustainable growth.We not only through empirical research to analyze the relationship betweenstate-controlled companies, free cash flow and the sustainable growth rate, and also verifythat the efficiency and sustainable growth rate of China’s state-controlled company is lowerthan the non-state holding companies. These have certain significance for the theory,practice, and policy formulation in the future.