Research On The Correlativity Between Free Cash Flow And Value Added Of Listed Companies In China

The survival and development of the listed company is based on value creation,which is mainly driven by free cash flow. However, free cash flow runs with valuecreation and risk. To take advantage of free cash flow with minimal risk tomaximize value creation, it is necessary to identify the correlativity between freecash flow and value added.The thesis gives a theoretical analysis to free cash flow and value added,proposes assumptions about the correlativity between free cash flow and valueadded，and establishes a function model and the quadratic function model of freecash flow, combined with corporate governance factors such as the proportion ofstate-owned shares, ownership concentration and so on. The empirical researchuses Chinese1067listed companies from the year of2003to2010as a sample inthe study, having a descriptive statistical analysis to free cash flow, value addedand their ratio, and having a regression test to the relationship between free cashflow and value added from three angles of the whole, interval and industry.The results show that a parabolic curve exists between free cash flow and valueadded when Chinese listed companies as a whole, showing differences in variousindustries; there is relatively severe agency cost problem in free cash flow such asexcessive job consumption, over-investment in listed companies with more cash,which is closely related with corporate governance. Based on the above findings,the thesis raises recommendations to concern and optimize free cash flow andimprove the corporate governance structure for the purpose of improving the abilityto create value added for all stakeholders.