Research On Free Cash Flow、corporate Governance And Capital Structure

The research of capital structure has always been one of the highlights among the domestic and foreign scholars. It is the convergence of capital markets and micro enterprises, with important implications for capital market research and corporation finance research. From the beginning of the 1950 s, researchers began to study the capital structure. This paper focuses on the long-standing hotspot issues on the basis of previous studies to influence agency costs to shareholders liabilities preferences as entry point to examine the capital structure of the specific issues, to tap the space in this field.Some scholars have also noticed that the free cash flow has an effect on capital structure, in view of the agency cost between shareholders and managers. but on the effects on the capital structure of corporate governance, due to the company’s governance indicators system is not perfect, scholars have not reached common conclusion. This paper, on the basis of predecessors’ research, joined the free cash flow and corporate governance, and researched the impact of the agency cost on current capital structure.Based on the financial data of all A-share listed companies with the exception of financial firms which have come to market in the Shenzhen Stock Exchange or Shanghai Stock Exchange, for the time period 2005~2014, since there is no publicly available domestic corporate governance index, the paper first constructed the Chinese G-index through the principal component analysis, then take the capital structure of a phase lag into the account. Finally studied the effect of the free cash flow and corporate governance on the current capital structure using system O LS,The research found a positive correlation between t he leverage ratio and the free cash flow, and a negative correlation between the leverage ratio and the corporate governance. Besides, when the free cash flow in a reasonable scope, the higher the level of corporate governance, the lower the asset- liability ratio.The three conclusions above demonstrated that the surplus free cash flow and weak corporate governance lead to more agency cost. As a result, shareholders prefer higher debt ratio, taking advantage of creditors’ supervision to restrain managers.