The Study Of Influences About Listing Corporation Operating Performance To Overinvestment Of Free Cash Flow

Free cash flow has been proposed and used for over20years. Free cash flow can provide capital providers with the largest cash amount, in the premise that sustainable development of companies is affected. That is to say, free cash flow refers to the additional cash flow, that is, the balance of the operational cash flow and capitals needed for maintaining the existing production capacity of companies. Therefore, making comprehensive considerations of corporate investment operation, investment and dividend distribution and other issues, and using the cash basis accounting, can effectively avoid the poor performance of traditional indexes including the operating cash flow and profits in assessing business performance of listed companies, thus fully reflecting the operating performance of listed companies. In this paper, through an overview of relevant literature and theories about business performance and over-investment of free cash flow and on the basis of the Free Cash Flow Hypothesis, the Principal-agent Theory, the Asymmetric Information Theory and Free Cash Flow Hypothesis, an analysis is made of influence of business performance of listed companies on over-investment of free cash flow.However, studies on free cash flow are mainly made in the following aspects. On the one hand, the free cash flow hypothesis is tested. On the other hand, introductions are made to definitions, functions and formula for free cash flow. On this basis, evaluations and analyses are made of corporate values. However, no research has been made on influence of business performance of listed companies on over-investment of free cash flow.In this paper, an overview is made of current situations of research in this field at home and abroad. Discussions are made of relevant theories about business performance and over-investment of free cash flow based on a qualitative analysis. Moreover, on the basis of the panel data of A-share listen companied from2008to2012, a model about the expected investment of listed companies is built. Cross-sectional data is used to make a multiple linear regression, so as to measure the over-investment and make a quantitative analysis of the over-investment of free cash flow.Secondly, on the basis of using the expected investment model to identify over-investment, the time effect is considered in the fixed effect model. That is to say, the panel two-way fixed effect model is used to make an estimate of the model. On this basis, research is made on influence of business performance of listed companies on over-investment of free cash flow. According to results obtained from empirical research, it can be seen that a considerable part of listed companies in China show over-investment behaviors; listed companies with plentiful free cash flow are more prone to over-investment; business performance of listed companies is negatively correlated with over-investment of free cash flow.Finally, based on research results of this paper, several policy recommendations are proposed to suppress the over-investment of free cash flow in listed companies.