Free Cash Flow,Management Shareholding,Company Excessive Investment

The main trend that Chinese economic has recently developed is high investment andhigh growth. Under the background of fixed assets increasing gradually, study aboutcompany investment efficiency attracts the attention of the theory boundary and academiacircles. Ownership and control of two power separation is the typical feature in the processof modern company management. Two rights separation causes conflicts of interest betweenmanagement and shareholders and increases the agency cost. Management who does nothold shares will give preference to favorable investment projects when making decisions,rather than consider shareholders’ interests. Inherent characteristics of informationasymmetry in capital market hinder the efficient allocation of resources. Informationasymmetry makes shareholders cannot be good for effective supervision and managementof investment behavior. When the company has more cash flow, the management is easy toform the excessive investment behavior as the agency conflicts and asymmetric information.In this case, the management shareholding as a kind of effective incentive mechanism isadopted. But Chinese management shareholding is generally not high, whether it caneffectively alleviates agency conflicts and has the impact on the company’s investmentbehavior is what this paper wants to study.Based on the characteristics of China’s economic system and market environment, thispaper studies the excessive investment problem of listed companies from the perspective ofcorporate governance based on the hypothesis of free cash flow and combiningprincipal-agent theory and information asymmetry theory. With the data of listed companiesof A-shares of China’s Shanghai and Shenzhen, on the premise of considering the effects ofcompany growth opportunities, it’s analyzed systemically that management shareholdingand excessive investment, that’s the correlation of free cash flow sensitivity. The resultsstate as follows:(1) There generally exists the phenomenon of excessive investment inChinese management shareholding;(2) Agency conflicts led to excessive investment of thecompany when the company has more free cash flow;(3) In the presence of excessiveinvestment of the company, management shareholding can inhibit the excessive investmentbehavior of listed companies;(4) Management shareholding can reduce the firm’s free cashflow, which constraints the excessive investment behavior of the company.