Research On The Relationship Among Free Cash Flow, Capital Structure And Corporation Performance

With the development of enterprise, the importance of cash flow is more and more important. The enterprise with a lot of cash flow can strengthen it’s strength and enhance it’s competitiveness. While the enterprise with little cash flow maybe trig it in crisis, then eventually lead itself to bankruptcy. Thus, cash flow can decide the survival of enterprise and reflect the nature of enterprise. Because of American Financial Crisis in 2008, it triggered the focus on cash flow for researchers. And the focus is free cash flow based on cash basis. A enterprise with no cash flow can eventually lead to its bankruptcy. Thus, cash flow is quite important for the enterprise development. In order to get the real enterprise performance result, discount cash flow model is the most common method in numerous evaluation methods, and it is the most compelling method, and it broke the traditional performance evaluation through the accounting profit through practice. Compared with the free cash flow, accounting profit is no longer authentic, it is only accounting personnel based on accrual basis to calculate a book number, and the number as a result of the existence of some outstanding projects have a certain risk, even lead to the enterprise bankruptcy. While free cash flow is calculated based on the basis of accounting, it prevents the use of subjective thought the false behavior of forged profits, which can more truly reflect the business performance results. Therefore, through the free cash flow evaluating enterprise performance has a certain objectivity.In the 1960 s, the concept of "free cash flow" was appeared. In 1986, Mr Jensen further annotated the concept. He thought that as a result of the existence of two rights separation, it leaded to the different objectives between managers and shareholders, eventually produced free cash flow agency cost, and he pointed out that we can reduce agency cost through improving the debt ratio, namely the external creditors will supervise the enterprises, constraint managers behavior and reduce the agency cost. In order to guarantee their lending money for prescribed purposes and maturity can recover in time. As a result, he thought that free cash flow and capital structure had a close relationship.Since this new concept of "free cash flow" appeared, it became the focus of scholars, but the research content was unitary and it lacked depth, such as: mainly studies on the concept and calculation method; the company’s performance evaluation method based on free cash flow; and a simple relationship between debt ratio and free cash flow and so on. And at the same time, put together the three study is quite few, and the research data are mainly composed of main board and middle and small capital stocks.On October 30, 2009, the first 28 gem companies officially listed in Shenzhen stock exchange, which further perfect the capital market of our country. Similar to the content of the research process and research for main board companies before, many scholars begin to study the GEM(Growth Enterprise Market) companies, such as the company’s growth, financial characteristics, ownership structure, evaluation method of corporation performance, the relationship between capital structure and corporate performance, but there is no research literature among free cash flow, capital structure and corporate performance. And research by scholars of the gem companies, they found that it had its own unique characteristics. Therefore, in other markets before the research on the relation between the three research conclusion is suitable for the growth enterprise market, which needs further research. In view of this point, this paper studies the relationship between the three elements respectively from the selection data of main board, the growth enterprise market, and compares results, and then find out the differences and make a reasonable explanation, finally get targeted conclusions. In the end, we come to the conclusion and provide practical suggestions for the development of the main board and gem listed companies.