Research On The Relationship Between Financial Flexibility,Corporate Governance And Over-investment

As the largest developing country,investment is an important thrust to drive the economy in China.Today,with the rapid development of economy,the output value of investment has accounted for a large part of GDP in China.It has created important value,and investment efficiency and scale of investment determine the profit of investment.After the subprime mortgage crisis in the United States,in order to cope with the adverse effects brought by the financial crisis,China put forward a plan to invest four trillion in the end of 2008 to the end of 2010,so as to promote the soft landing of the economy.Under the guidance of this policy,the scale of investment in China has expanded rapidly.At the same time,the phenomenon of extensive development of investment has also emerged.Investment is indispensable to the economic growth of our country.But the intemperate investment behavior of the enterprise leads to the production of social problems such as waste of resources and overcapacity.Investment activities are related to the future cash flow of enterpri ses,affecting the daily operation and business value of enterprises.Overinvestment has also brought irrevocable damage to enterprises themselves.Therefore,alleviating the plight of over investment has become an urgent problem for enterprises.Financial flexibility,as one of the enterprises' financial management strategies,can help enterprises to grasp the opportunity of investment and prevent the unknown impact.A company that reserves financial flexibility means having unused financial resources.Whether management will make use of those resources to over invest has become a very theoretical and practical issue.In this case,whether the internal governance mechanism of the company can play a role,and to regulate the relationship between financial flexibility and overinvestment is also worth exploring.The study of overinvestment in China is mainly related to investor sentiment and managerial overconfidence.Whether financial flexibility will affect over investment still needs to be further widened.Therefore,the introduction of financial flexibility is a new perspective to overinvestment.As one of the financial management strategies of enterprises,financial flexibility is mainly caused by excess cash holdings and low financial leverage.Financial flexibility can help enterprises grasp investment opportunities and prevent unknown shocks.According to the existing research results,some scholars have confirmed that the excess cash holdings and low leverage effect on over investment,financial reserves of flexible enterprise means without the use of financial resources,management whether excessive investment has become a very theoretical and practical value of the use of these resources.In this case,whether the internal governance mechanism of the company can play a role,whether corporate governance plays a moderating role between financial flexibility and over investment is also worth exploring.This paper analyzes the current investment situation in China.Under the background of extensive investment development,aiming at the increasingly serious overinvestment problem of enterprises,through analyzing the existing research results of financial flexibility and corporate governance,we discuss the mechanism of the two over investment.In the part of literature review on the relationship between corporate governance and financial flexibility,the three research results carried out a detailed description,and then through the principal-agent theory and the free cash flow hypothesis deduction,put forward the main hypothesis of this paper,discusses the influence of financial flexibility on excessive investment,on the important role of corporate governance in the play and deep.Based on the selection of Listed Companies in the manufacturing industry 2012-2016 years of data for empirical analysis,the use of Richardson in the model(2006)model to measure over investment,from Ceng Aimin(2011)method to measure the financial flexibility,in order to better measure of corporate governanceThe adjustment function is analyzed by multiple angles.This paper takes the listed companies of manufacturing industry as the research object,and uses the correlation analysis and the regression analysis method to carry on the in-depth study.Through the empirical test of the model,the hypothesis of this paper is verified.The main conclusions are as follows:(1)financial flexibility has a positive effect on over investment,and corporate governance variables can play a regulatory role.(2)the increase of ownership concentration will aggravate the role of financial flexibility in the promotion of overinvestment.(3)the increase of managerial ownership will inhibit the effect of financial flexibility on overinvestment.(4)the increase of managerial compensation will inhibit the promotion effect of financial flexibility on overinvestment.Finally,based on the conclusion,this paper puts forward some suggestions for the overinvestment and the reserve of financial flexibility,and points out the shortcomings of this research,so as to provide reference for the research in this field.