The Research On The Relationship Of Over-investment And Free Cash Flow, Corporate Value

In the modern theory of financial management, three major financial decisions oflisted companies including investment decision, financing decisions and dividend policy.As a starting point of financial decisions, investment decisions directly affect the othertwo. It is in a key position and it plays an important role in an enterprise’s financialmanagement. Appropriateness of investment decision is important for enterprisesustainable development from the perspective of micro-economic, also reflect theefficiency of the national financial system from a broad perspective. Informationasymmetry, moral hazard, the principal-agent theory and many other problems oftencause enterprise investment behavior has deviated from the goal of maximizing theenterprise value, and select non-efficiency investments. The research results on theinvestment of the Western scholars are of great significance. They guide the growth anddevelopment of enterprises in theory. The capital market environment in China andWestern countries are considerably. At present, in China’s capital markets, resourceallocation efficiency is low, inefficient investment problems are serious. Over-investmentis the most important factor leading to inefficient investments.This paper establishes an expected investment model based on the agency theory,free cash flow hypothesis and refer to the academic research findings. I undertake a studyon manufacturing data of listed companies in China, by using the correlation test,descriptive analysis and multiple regression analysis method. Research results indicatethat the over-investment behavior exists in listed companies in China. The relationshipbetween over-investment and free cash flow is positive correlation. The over-investmentof a company who has high free cash flow and low-growth opportunities is more serious.Over-investment and corporate value renders a significant negative correlation.Over-investment will reduce the value, the correlation of a company who has high freecash flow and low-growth opportunities is more clearly.