Free Cash Flow,Corporate Governance And Expense Stickiness

For a long time,expense of corporate performs higher viscosity in our country,which means that the enterprise with the economy changing reacts slowly,resulting in low long-term performance of enterprises.It is not conducive to the realization of optimal allocation of resources and the improvement of international competitiveness.Thus,how to effectively reduce the viscosity of expense has great research value.In-depth study of expense stickiness not only helps to uncover the "black box" of expense management in the industry,but also builds a bridge between financial accounting and management accounting.At present,the "opportunist view" has become the main explanation in the study of the causes of the expense stickiness.The separation of powers generates agency problems,and there is a clear conflict of interest between managers and shareholders.Because managers are limited rational economic man,they will seek selfish interests at the expense of the interest of the owners,which cause the expense behavior of the enterprise inconsistent with the optimal allocation of resources when the decision of resource adjustment is made,it results expense stickiness.Thus,there is a great link between the cost of stickiness and management behavior.Adequate free cash flow enhances managerial self-interest motives,because motives decide people's behavior,managers' opportunistic behavior enhances firm's cost stickiness.Corporate governance,as an effective mechanism to mitigate the conflicts of interest between owners and managers,can reduce the self-interest behavior of the managers and then reduce the cost stickiness of enterprises.Based on literature review and theoretical foundation,this paper first puts forward hypotheses and establishes corresponding models,and then does empirical analysis,and finally draws conclusions,puts forward rationalization proposals.Taking A-share listed companies in 2008-2014 as the research object,the effect of free cash flow on cost stickiness is analyzed.Thirdly,considering the internal and external mechanisms of corporate governance,20 corporate governance indicators are selected to study the effects of various factors of corporate governance on cost stickiness by means of factor analysis.Then,the enterprises are divided into two groups,high and low corporate governance level,and the effect of free cash flow on the cost of viscous differences.The main conclusions of this study are as follows:(1)Ample cash flow strengthens the expense stickiness of enterprises.When the enterprise owns adequate free cash flow,and the business increases,it prompts managers more inclined to non-efficiency investment,excessive consumption,blind diversification behavior,rather than assigned to shareholders.And when business decreases,managers do not want to reduce their own pay,in order to maintain controllable resources,they retain some of the funds which should be cut,which results in cost viscous characteristics are particularly significant.When the enterprise is shortage of funds,managers based on their own reputation will strengthen the control of costs,to prevent business disruption,affecting the daily operation of enterprise this time the cost of viscous significantly reduced.(2)Perfect corporate governance mechanism will strengthen the control of the cost of enterprises,managers will follow the business volume changes in a timely manner to adjust costs,which reduces the expense stickiness;the other hand,it will strengthen the supervision of managers to suppress its opportunistic behavior,which reduces the expense stickiness.(3)Perfect corporate governance will inhibit the impact between free cash flow and expense stickiness.The higher the level of corporate governance,the greater the risk of managerial opportunistic behavior,which inhibits the effect of free cash flow on cost stickiness..The innovation of this study is as follows:(1)This paper studies the effect of corporate governance on expense stickiness,considering both the internal mechanism of corporate governance and the external mechanism of corporate governance,and using factor analysis to reduce single index measurement errors and the randomness of a series of single indicator to form a comprehensive index.It analyzes the effect of various corporate governance factors on the expense of sticky,and gives advice on how to effectively reduce the expense of sticky.(2)According to the definition of free cash flow by Hankedan et al.(2001),the free cash flow of the management can be measured by the opportunism behavior.The difference is that the former only measures the free cash flow by the net flow generated by the business activities.The study also considers capital expenditure,interest expense to make the result more accurate.