An Empirical Study On Overinvestment Of China’s PV Industry From Free Cash Flow Perspective

One problem that the Government and the Entrepreneurs concern is the overinvestment phenomenon in China’s PV industry (Solar Energy industry). The overinvestment leads to the resources’inefficient relocation, and some other economic and social issues. Some researches try to finger out how the overinvestment happens in the PV industry from macroeconomics perspectives, and not so many researches succeed to avail enough China’s domestic data to interpret the mechanism of overinvestment, especially on a specific field such PV industry. So the author is keen on the research on how the corporations’ strategy leads to the overinvestment of the PV industry.The paper tries to adopt investment model of Richardson(2006) to define the overinvestment status of various corporations, which is recognized by the residue that investment minus investment expectation, fingering out whether the corporations has overinvested to some extent. Then quantify and analyze the factors underlined in the overinvestment of China’s PV industry.The results suggest that, free cash flow is significantly related to the overinvestment of China’s PV industry, the increasing of asset-liability ratio leads to the overinvestment, short-term loan efficiently restrains the overinvestment, but long-term loan does not efficiently restrain the overinvestment. The author conducts an empirical study and support the results above.