About The Empirical Study Of Free Cash Flow, Dividend Policy And Overinvestment

As there are many problems being in our state-owned enterprise in China, for example:the owner absence, corporate governance structure grammaticalization exit in name only and stock rights unreasonable etc. And additionally the capital market is in the immaturity stage, the overinvestment behaviors are more and more in our state-owned enterprise. The enterprise value of state-owned promoted is restricted because the overinvestment behaviors are prevalent phenomenon. The agency relation of shareholder and manager is being because the ownerships and the rights of management are separated that is why the state-owned have the overinvestment behaviors more and more, which we can learn from the definition of overinvestment. The managers will chase the Maximizing Self-interests who are motivate to make the most of investment by free cash flow so far as the net present value is negative on account of the information asymmetry and the benefit inconsonant. One of the direct methods is distribute cash dividends if we want to restrict the enterprise behavior of the overinvestment and we need to restrict the free cash flow of the enterprise. But we have found that the behavior of overinvestments those are cause by free cash flow are controlled by distributing cash dividends, that will also raise the uncertainty of behavior.First we will tease the pertinent literature and context on the free cash flow and the overinvestment, dividend policy and overinvestment of free cash flow then we will analyze the situation of overinvestment of state-owned enterprise and policy of dividend at this stage on this basis of free cash flow hypothesis, the principal-agent theory and stock dividend agent theory, Secondly we have selected and studied the data of the state-owned marketing enterprises in stock markets of Shanghai and Shenzhen from 2010 to 2014. Now we have got the conclusion from the empirical analysis that the free cash flow and overinvestment are being significant positive correlation; meanwhile, there has a certain relation between the dividend policy and the overinvestment, the level of overinvestment of free cash flow will be controlled by the stable dividend policy. If we decrease the free cash flow of state-owned enterprise, raise the dividend payout ratio, consummate the share incentive mechanism, which we will raise the efficiency of investment of state-owned enterprise.