Research On The Relationship Of Corporate Comprehensive Control Power, Free Cash Flow And Investment Behavior

In this paper, we designed the enterprise comprehensive control power model from two dimensions that are large shareholder control power and managerial control power. Based on the agency theory and enterprise investment theory, we also designed the research framework of the relationship of corporate comprehensive control power, free cash flow and enterprise investment behavior. That is in revealing the relationship between free cash flow and investment behavior, we try to find out the differences of enterprise’s investment behavior under different comprehensive control power models.Through the literature review and strict theoretical analysis, the paper comes up with several hypothesises.To test the hypothesises, the paper selects the full sample data of public companies listed in Shanghai and Shenzhen Stock Exchange Center between2008and2012for empirical research. The empirical results show that,(1) there is a significant positive correlation between free cash flow and corporate investment expenditure, and there is significant negative correlation between free cash flow and the investment efficiency; the investment priority the enterprise uses is investment in fixed assets, long-term equity investment, the investment of intangible assets;(2) there is a significant difference of the investment level under different corporate control power models; the enterprise tends to invest in the fixed assets when the senior management has a strong control on the company, and in the long-term equity investment when large shareholder; however the enterprise tends to invest in intangible assets when neither large shareholder nor senior management dominates the corporate comprehensive control power;(3) the balance between large shareholder and executive can inhibit the over-investment and alleviate the undercapitalize problems effectively. Finally, the paper comes up with two suggestions based on the empirical results,that are, the company should put focus on how to improve the investment efficiency, like assigning investment expenditure between fixed assets, long-term equity investment and intangible assets rationally; and the company should also optimize the corporate government system to make the large shareholder and senior management can restrict each other.