| Myers (1977) considered the value of the company is the added value brought by the using assets which profit from continuing operations in the future and future investment decisions’value of the option, the latter is called the investment opportunity set, which is the set of investment program that can enhance the company’s value. Investment opportunity set can mean all expenditure or option that company chooses them to increase corporate value. It represents a company’s future growth potential. The modern financial management theories generally use the estimated future cash flows from operating activities to assess the companies’value. This shows that the future cash flows can directly determine the value of the enterprise. Stock prices reflect the true value of companies in the capital markets, so the stock price and cash flow should be relevant and thus we can infer the existence of correlation between stock returns and cash flow from operating activities. In the real economic environment, the existence of tax policy, transaction costs, asymmetric information, agency costs and other issues usually makes economic resources owned by enterprises cannot obtain a valid configuration, thereby leading the problem of excessive investment and affecting the company’s stock gains. Academics analyzed the influence of listed companies’ overinvestment phenomenon to stock returns from different angles and obtained a lot of meaningful conclusions. However, existing literatures have not ever discussed and analyzed what relationship is existed between investment opportunity set and the cash flow value relevance in-depth.In addition, the existing literature has already studied the governance effectiveness of external independent audit. It found external independent audit can reduce information asymmetry between company management and investors. Auditors can reduce information risk by forensic accounting information, thereby providing decision support to investors and protecting investors effectively. Therefore, the impact of high-quality auditors’ intervention to the correlation between investment opportunity set and cash flow value is worth further study. In addition, because of the special institutional background, there is a considerable number of listed companies is restructured from state-owned enterprises in Chinese stock market, the government for the actual control of the enterprise, thus inevitably such listed company controlled by the government, the government may affect the financial behavior of listed companies by financial means to configured the recourse. Therefore, to the different ownership listed companies, whether the impact of high-quality auditors’intervention to correlation between investment opportunity set and cash flow value correlation is different worth study.Based on the theory of Investment opportunity set and corporate value, efficient market hypothesis and surplus value relevance and audit needing motivation theory, this article attempts to construct the framework of correlation between investment opportunity set and cash flow value. Then using empirical methods to provide evidence for the theoretical framework. Thesis selected A-share listed companies from2004to2011as samples, systematically examine the influence of investment opportunity set, cash holdings level, high-quality audit and the nature of ownership to operating cash flow value from the perspective of the company’s internal financial resources. Studies have shown that:investment opportunity set cash flow positively correlate to the operating cash flow value and this relevance existed only in the low cash held level companies. And if the low cash held level companies hired high-quality auditors, the positive correlation between investment opportunity set and operating cash flow value will be significantly reduced. Further test also found that high quality audit only significant weaken the positive correlation between investment opportunity set and operating cash flow value in non-state-owned listed companies.Structural framework of this paper is:The first part is the introduction. In this section, we introduce the concept of investment opportunity set and cash flow value, and the problem of whether high investment opportunity set would influence the cash flow value. Also we broadly describe the article’s research background and significance, research ideas and methods; The second part is literature review. In this section we summarize the demotic and foreign research condition from the aspects of the investment opportunity set, cash flow, financial governance mechanisms, audit oversight and accounting information quality. And evaluate this literature; The third part introduces the basic theory of investment opportunity set and cash flow value relevance and audit governance effects. First, we conceptual introduce the investment opportunity set, high-quality audits and so on, explaining their meaning, characteristics and governance effects and other issues. Then introduce the basic theory. The fourth part is the theoretical analysis and assumptions made, we analysis the relationship among investment opportunity set, the cash flow value, high-quality audit and different control humanity quality, and put forward this paper’s research hypothesis respectively from the perspective of the whole sample, low level of cash holdings samples and control human qualitative. The fifth part is the empirical analysis of correlation between investment opportunity set and cash flow value relevance and robustness test. The sixth part is the study’s conclusions and recommendations. |
