Accounting Conservatism,Free Cash Flow And Over-investment

In the company's business operation,free cash flow and investment choice problem is an important part of its financial management,is an important reference to enterprise growth development and strategic implementation as well.However,due to the existence of asymmetric information and agency theory,enterprise's investment level is closely bound to the free cash flow it holds,which becomes the cause of the investment--cash flow sensitivity problem.Moreover,excessive free cash flow in the enterprise will cause over-investment and the over-investment of free cash flow problems will appear.Accounting conservatism is a reflection of discretion in the quality requirements of the accounting information.The company is required to adopt different standards for advantageous and disadvantageous news at the time of accounting,and to confirm the adverse effects related to the profit and loss items in a timely manner.Therefore,on the one hand,accounting conservatism can not only reduce the asymmetry information problems between the firm's owner and the external information users,but also can serve as a kind of constraint principle which allows the company to provide the accurate financial information to external information users in time and to improve the scientific nature of the investment.Prudent accounting information,on the other hand,as an important corporate governance mechanism,the appropriate application is able to relieve the relationship between the investment and the free cash flow.Improving the enterprise accounting information robustness can slow the contradiction and conflict as a result of separation of property rights between managers and shareholders or between creditors and shareholders,reduce the agent cost and the misappropriation of assets,which can reduce the over-investment and weaken the negative role that free cash flow plays in over-investment.In this paper,by using the combined method of standard research and empirical research in the study,in the part of normative analysis,it concludes primarily the related literature at home and abroad,respectively discusses the problems of over-investment under the influence of free cash flow and the supervisory and incentive role that the accounting robustness,as a corporate governance mechanism,plays in the over-investment because of excessive cash.Then,in the empirical research part,this paper selected the high energy-consuming manufacturing listed companies from 2013 to 2015 to study the related data of listed companies,using the method of multivariate statistical regression analysis of the selected samples and regression analysis to study the content.In this paper,we use firstly the expected investment model to measure the residuals of high energy-consuming manufacturing listed companies,which represent the company's over-investment level,then calculate robustness index by means of the surplus the relationship of stock compensation model,and finally construct the corresponding regression model.The results show that the over-investment in high energy-consuming manufacturing listed companies exists generally in our country.The more free-cash flow the company holds,the more severe over-investment is.The accounting conservatism can curb over-investment.In the case of the same free cash flow,the higher the accounting robustness is,the more likely to curb over-investment.The accounting robustness is able to weaken the phenomenon of over-investment because of free cash flow.This enlightens Chinese public companies to determine the level of free cash flow scientifically,reduce agency cost of free cash flow;also public companies should strengthen the accounting robustness principle,give full play to its role in the application of free cash flow and in the supervisory function of the operation and management,improve enterprise's investment activities,so as to curb over-investment.