Managerial Power,Free Cash Flow And Over Investment

As a main way of investment,M&A has been the focus of the capital market research issues.In recent years,more and more Chinese listed companies participate in M&A activities,but the effect of M&A is not ideal.A characteristic of modern joint-stock company is the separation of ownership and managerial rights,managers'goal is not necessarily the pursuit of maximizing the interests of the shareholders,but by expanding the scale of enterprises to increase their power,resulting in conflict between the interests of shareholders and the management.The size of managerial power reflects the game between management,shareholders,creditors and other stakeholders.If the managerial power is small,when making investment decisions,managers are likely to conform to the meaning of major shareholders,so the agency problems may lead to large shareholders against the interests of small shareholders during investment decision-making;when the managerial power is too large,based on the principal-agent theory,the managers may tend to pursue their own the interests and make decisions that may damage the interests of shareholders.According to the literature review,few scholars directly study free cash flow and managerial power,and there are also few scholars study the impact of managerial authority on M&A,from the perspective of free cash flow.As for,based on the content of free cash flow hypothesis,principal-agent theory and asymmetric information theory,this paper used the completed acquisitions of listed companies in 2013 as the research sample,the over investment level of M&A company calculated by investment model as the explanatory variable,the managerial power score synthesized by five indexes as explanatory variable,the free cash flow as the intermediary variable to construct multiple linear regression models,the core objective is to study the intermediary role of free cash flow when managerial power affects over M&A in decision making.This paper proves that there is a positive correlation between managerial power and free cash flow,that means the greater the power of management is,the more free cash flow there will be,and a positive correlation in the free cash flow and over M&A.The more abundant free cash flow there are,the more likely leads to over M&A,which also verify the free cash flow hypothesis in China's Listed Companies in the decision making.The results show that free cash flow plays a part intermediary role between managerial power and over M&A.The larger management power is,managers more easily control a large amount of free cash flow to execute over M&A paving the way for the interests of themselves.Based on the results of empirical research,the paper therefore puts forward four following suggestions:(1)Enhance the ability of managing free cash flow,improve relevant legal system by law,increase the penalty of illegally wasting free cash flow for self-interests;set standards for free cash flow within the company to improve the efficiency of using free cash flow;(2)Strengthen supervision and management.By improving the level of internal governance in the company to strengthen internal supervision,encourage external stakeholders to help strengthen the external supervision;(3)Improve the managerial incentive and implement prudent management incentive measures.Appropriate managerial incentive can coordinate interests between managers and shareholders,but also should determine the managerial incentive level according to the situation of the company;(4)Focusing on M&A information disclosure,perfect information disclosure system can effectively guarantee stakeholders'rights;protect the interests of minority shareholders and creditors.