Research On The Impact Of Free Cash Flow And Growth Opportunities On Over-investment

Investment is one of the basic enterprise economic activities, in recent years, the rapid growth of the speed of our country enterprise investment has brought the huge impetus to the economic development of China. However, after the Financial Crisis in 2007, some irrational investment made the phenomenon of over-investment has appeared on the market in our country, which not only caused adverse effect to the growth of enterprise development, but also made the resource allocation efficiency is relatively low, and had a serious impact on the development of market economy. There are many factors that can cause over-investment, and the impact of these factors on the over-investment is very complicated, so it is important to understand the influence factors of over-investment and improve the phenomenon of over-investment. In addition, there are a large proportion of manufacturing enterprises in our country, they are the pillar of the national economy, and are directly related to our country’s level of economic development. Focus on the economic problems of manufacturing enterprises is of great significance.Scholars at home and abroad had studied the problem of over-investment on different angles, and obtained the fruitful research results. On the basis of the review of previous studies, this paper put forward different research hypothesis based on free cash flow hypothesis, the firm growth theory and overconfidence theory, and make the research based on the data from 2008 to 2012 of the manufacturing enterprises in the Shanghai and Shenzhen stock exchange. First of all, the forecast model of the best investment is established based on the model of Richardson, and the over-investment sample is obtained by the residual error of the model, which also verify the manufacturing enterprises listed in our country exists serious phenomenon of over-investment. Secondly, analysis the impact than the free cash flow and the growth opportunities on over-investment of the over-investment sample by descriptive statistics analysis, multivariate linear regression analysis and so on, the research results show that the free cash flow, the growth opportunities and enterprise over-investment have a positive significant correlation relationship. Finally, relevant suggestions are proposed for the improvement of the over-investment, and the future research directions are put forward.