A Study On Free Cash Flow, Corporate Governance And Expense Stickiness

The traditional theory of cost behavior model that change between expense and volume is linear relationship and symmetrical. It is a kind of based on the assumption of ideal environment, the enterprise of expense in the practical operation will be influenced by many factors. Anderson put forward that the American firms exist Expense Stickiness for the first time in 2003. When the volume changes in a different direction, the increase of business volume equal to reduce the expense of the increase is higher than the expense reduction. Then a large number of scholars do a lot of in-depth study for expense stickiness, they developed the theory of expense of sticky, studying the Expense Stickiness has very important theoretical and practical significance.This paper is based on the related Expense Stickiness literature at home and abroad which are reviewed and put forward the assumption on the basis of the free cash flow theory, corporate governance theory. This paper takes 1136 China's listed companies in stock markets of Shanghai and Shenzhen over the period 2008-2013 as samples for empirical research. The main Study line is "opportunistic view- expense stickiness, free cash flow, corporate governance, product market competition". To begin with,we test the existence of the expense stickiness for the listed company expense; Then, Opportunistic view as the starting point of research,the free cash flow as the substitution variable of management opportunism behavior, we study the relationship between free cash flow and expense stickiness, with the empirical research methods to verify expense stickiness opportunistic view; Furthermore we contrast research the relationship between the corporate internal governance mechanism and expense stickiness from the board of directors, ownership structure, management incentive, distinguish between high and low levels of cash flow. Final we study the relationship between corporate external governance mechanism and expense stickiness from the perspective of product market competition.Empirical study found that:(1) The listed companies in China exist expense stickiness.(2) The free cash flow and cost stickiness degree has a positive correlation, the empirical results show that opportunistic view is one of the causes of the expense stickiness.(3) At a high level of free cash flow, it showed significant negative correlation between expense stickiness and the company's internal governance. In the equity structure of expense stickiness inhibitory effect is more apparent.(4) It is negatively related to the relationship between the degree of product market competition on company's external governance mechanism and the degree of expense stickiness. The more intense the product market competition is, the lower the level of the expense stickiness will be.(5) Comparing the internal governance mechanism with the external governance mechanism, we found expenses stickiness inhibitory effect was more apparent from the perspective of the internal governance mechanism.