The Research On Over-Investment Behavior Of Listed Based On Free Cash Flow

Investment decision is the starting point of financial decision and an important part in financial activities. In the modern financial management, the investment decision, financing decision and dividend policy are the most important decisions. Under the market economy, the enterprise’s investment decision is reasonable or not, will has a direct influence on the profitability and risk management, Further, will influences enterprise’s dividend distribution and re-financing ability, finally affects the enterprise’s survival and development. So the investment decision plays a decisive role in the company, is the crucial basis for enterprise’s growth and future cash-flow increase.Since the reforming and opening, China’s economy growths rapidly, and the size of fixed assets investment expands increasingly. But following the prosperity, there hidden the non efficiency of investment. Some scholars have pointed out that many China’s listed Companies are facing over-investment problem now. As the main part of market economy, the enterprise’s over-investment will not only affects the development of its own, but also can lead to the macro economic "overheating", and lots of resources are wasted, it’s not good for the economic to be sustained and healthy development. Therefore, over-investment problem should be taken extensive attention and research by the theory and practice.According to the Jensen’s Free Cash Flow Theory, because of the principal-agent relationship between the shareholders and managers, when the manager can controls more free cash flow, the more over-investment behavior will happens. So, based on Free Cash Flow Theory, this article wants to test in the listed companies, the manager will put the free cash flow into non efficiency projects whether or not. Firstly, reviewing and recapitulating the related literatures at home and abroad, then, introducing some related knowledge of over-investment and free cash flow theory, including the definitions, Asymmetric Information Theory, and so on, in order to build the theoretical basis for the full text; Secondly, establishing investment expectation model and evaluating appropriate investment and over-investment level for the empirical analysis, then, researching the relationship between over-investment and free cash flow, inspecting in the listed companies of steel industry, the agency problem existences or not. The research found that the over-investment and free cash flow has a significant positive correlation. It is proofs the Free Cash Flow Theory. In order to further explore the constraints of over-investment, we add variables from different angles of debts. The result shows that the debts didn’t restrain the over-investment behavior, but encouraged it. Finally, according to the empirical results, we put forward some corresponding proposals, such as how to strengthen the liability’s constraint and broaden the financing channels for companies.