Corporate Governance And Over-investment Of Free Cash Flows Under Ultimate Control Right

In this paper, we have researched the relations between the corporate governance and the over investment of free cash flows under ultimate control right. We got the over investment and free cash flows by Expected Investment Model. On this basis, we proposed the optimal model to research three aspects, as followings:(1) the relations between free cash flows and over investment; (2) the influences on the over investment by the divergence of "two rights" under the big and small control rights, respectively; (3) the influence on the over investment of free cash flows by the corporate governance factors under ultimate control right.About the methods, we see the degree of the divergence of control rights and cash flow rights, and the degree of ultimate control rights as the ultimate controllers' force and capability to seize the corporate. There are 3096 panel data from 516 corporations between 2004 and 2009 in the empirical study. The main conclusions are:(1) divergence of ultimate controllers' control rights and cash flow rights will make the over investment worse, and the trend of the influence is like inverted U; (2) The increase of the control rights of ultimate controller will add over investment. Contrary to the situation when the control right is small, the saliency of the sensitivity of free cash flows and over investment and the sensitivity itself are bigger when the control right is big. (3) The institution of independent director cannot decrease the over investment effectively; (4) the increase in the scale of board of the directors can add over investment; (5) multi-control and the property of the ultimate controller do not decrease over investment of free cash flows effectively.After all, we give some suggestions as followings:(1) Improve the supervision in the corporation, in which there exists the divergence of "two rights"; Reduce the motivating of the ultimate controller in seizing the corporate in case of the divergence of "two rights"; (2) Strengthen the institution of independent directors and improve the structure of the boarding of directors; (3) Increase the control rights of the un-control shareholders, and construct the appropriate equity structure; (4) Improve the information exposure and reduce the agency problem.