The Stability Of Free Cash Flow And The Test Of Company Value

Based on9846observations of listed companies in China’s Shanghai and Shenzhen A-share Market in2003-2011, the thesis validated that stability of free cash flow can significantly improve the value of listed companies by correlation test, univariate test and multivariate test. Besides, we found that under tight monetary policy, stability of free cash flow contributes more on enhancing firm value. What’s more, the higher the degree of competition of the industry, the more significant the correlation between free cash flow stability and firm value. This thesis revealed the underlying reasons that free cash flow management can benefit firm value, and explored the factors that affect the free cash flow stability, and recommended on free cash flow risk management for both managers and investors.The thesis has the following structure arrangements:The first part is an introduction of the topic, which reveals the significance of writing this thesis, applicable methods and originality; The second part has explored the internal relations between cash flow risk and firm value, on the basis of previous literature on cash flow stability, value management and risk management, to provide a theoretical basis for our assumptions; The third part has established three core assumptions on the free cash flow stability and enterprise value, to pave the way for later empirical results; The fourth part describes the sample, variables and empirical methods, studies the relationship between stability of free cash flow the firm value, and examines factors like monetary policy and degree of competition; The fifth part gives conclusions and directions for further study.