Control Power, Free Cash And Corporate Investment Behavior:Analysis On Listed Companies Of Chinese Manufacturing Industries

China listed company’s investing behavior is a controversial topic in recent years because of the conflicting investing situation present:national12-5plan clearly forbid repeating and low efficient investments in certain sectors, at the same time, large number of small companies faced severe fund restrain; on one hand, many SOEs engages into the very prevailing overseas M&A, on the other hand, domestic industry requires urgent upgrading. Furthermore, those phenomenons drive national fiscal and financial policies into dilemma. From the perspective of internal corporate governance mechanism, this paper is trying to provide empirical evidence of those phenomenons from the point of institutional background and ownership structure.Based on the ownership and control power allocation pattern and derivative multiple agency relationships in the marketization processes of China listed company, this paper focuses on major decision makers of corporate governance-large shareholders and senior management, and proposes a analysis roadmap of "control power-free cash flow-investment behavior". By designing empirical models on the relations between and large shareholders/senior management control power and corporate investing scale, capital type and invest efficiency, this paper tries to investigate whether "free cash flow hypothesis" and "agency cost theory" applicable in China.According to empirical results of735samples of manufacturing industry from2008-2010, it provides a positive relation between corporate cash reinvesting scale with large shareholders/senior management, and this supports the conclusion that large shareholders/senior management may abuse free cash in expanding investment scale under the incentive of private benefit. Furthermore, this paper also finds the evidence of conspiracy possibility of large shareholders and senior management in investing decisions. In decising investing assets type, large shareholders and senior management are both likely to expand long-term operation assets, while reducing investment in financial assets by means of intervening corporate cash reserves. The negative relation between large shareholders/senior management and equity investment proves the possibility of large shareholder’s control power consolidation or managerial "entrenchment" motivations. In terms of invest efficiency; over-investment and under-investment co-exist in China listed companies.60%of inefficiency investment caused by underinvestment due to fund restriction, however, the level of overinvestment is more serious and agency problem is a contributing factor. Specifically speaking, the larger of control power from large shareholders/senior management, the lower of investment efficiency.In conclusion, major investment decision makers-large shareholders and senior management try to leverage their control power in pursuing private benefit in investment decision making, which finally leads to inefficiency. Reallocating control power pattern and strengthening supervisions of public and professionals are suggested in solving this problem.