Free Cash Flow?Cash Dividend And Inefficient Investment

As an integral part of enterprise financial strategy,investment plays an important role in the healthy and harmonious development of macroeconomic and the good operation of micro-economic subject.From the point of the world,the better of an economic entity's development is becoming,the importance of investment is increasingly highlighted.But due to the existence of information asymmetry and irrational factors,economic resources are not optimal allocation,as a result of the inefficient investment is in abundance,which seriously damage to the interests of stakeholders and the healthy development of macro economy.To clarify the fact,scholars at home and abroad make a systematic analysis and intensive study of the inefficient investment,and try to reveal the causes of inefficient investment from different angles and put forward some ways to restrain the inefficient investment.According to the modern study,agency costs and financial constraint are the reasons for over-investment and under-investment.On the one hand,as a result of the existence of adverse selection and moral hazard,managers are not acting in accordance with the principle of shareholder's wealth maximization,when the enterprise owns much free cash flow,the manager could get rich quick,blind development,and even invest in some projects with negative net present value,which leads to the excessive irrational investment behavior.On the other hand,due to the imperfect capital market,some enterprises,especially small and medium-sized enterprises face the current difficulty of financing constraints,when faced good investment opportunities,they can not to fund the investment needed in time or the high cost of financing,so they are forced to abandon,which lead to inadequate investment.Therefore,solving the free cash flow caused by the inefficient investment problem is very important.According to the modern financial theory,cash dividend policy is a kind of effective supervision and contract mechanism,which has the function of reducing the agent cost and the signal transmission,and can reduce the sensitivity of the free cash flow and investment efficiency.When corporate have earnings,cash dividend payment reduces the free cash flow that the managers control,reducing the possibility of moral hazard or adverse selection.To a certain extent,the mechanism can inhibit the excessive investment behavior of managers.When the free cash flow is insufficient,cash dividend distribution for several years,sends good signals to outside,which can enhance investors' confidence and make the enterprise realize the financing to solve the problem of insufficient investment.Therefore,the dividend policies of listed companies are likely to produce certain effect to enterprise's investment behavior.But,our country's capital market is not perfect,and the system background and the regulatory environment are different from the western countries,the cash dividend policy of listed companies and have obvious "Chinese characteristics",can cash dividend play its moderating effects effectively? This is the starting point and a focus in the study of this article.Based on the data of A-share listed company from 2011 to 2015,we test the relationship between free cash flow and the inefficient investment and the moderating effects towards the relationship of cash dividends.We find:firstly,the more abundant of the free cash flow of listed companies,the more serious is the over-investment and the scarcity short of the free cash flow,the more serious is the under-investment;secondly,cash dividend have the moderating effects towards the relationship between the free cash flow and the inefficient investment.in other words the distributing cash dividend can inhibit the excessive investment behavior when a company has abundant free cash flow and three consecutive years' distributing cash can weaken the relationship between the cash flow shortage and inadequate investment when the listed company's free cash flow is shortage.