Free Cash Flow,Internal Control Quality And Over-Investment

As one of the three carriages that drive the economy,investment is not only the engine of national economic development,but also the driving force for social development.However,when the supply of investment exceeds the market demand,it will cause the investment to overheat,resulting in overcapacity.This overcapacity not only affects the company’s own business performance,but also hinders the country’s economic development.The report of the 19 th National Congress of the Communist Party of China clearly stated that it insisted on going to capacity,destocking,de-leveraging,reducing costs,supplementing short-boards,and optimizing the allocation of stock resources.So how to solve the problem of overcapacity caused by excessive investment has become the focus of academic circles.Scholars at home and abroad generally agree that corporate over-investment has a strong correlation with free cash flow.Therefore,it is extremely important to study the correlation between free cash flow and overinvestment.As a kind of management and control means that can improve the efficiency of business operations,internal control will affect the correlation between free cash flow and over-investment,and whether the impact is different in different property rights and economic regions,this is the research focus of this paper.This paper first analyzes relevant literatures at home and abroad,and sorts out the relationship between free cash flow,internal control quality and over-investment;secondly,from the two dimensions of different property rights and economic regions,in principal-agent theory,information asymmetry theory and On the basis of the free cash flow hypothesis,the relationship between the three is analyzed in depth,and further hypotheses are put forward.The empirical test is carried out again through multiple regression models,and the following conclusions are drawn:(1)Free cash flow and overinvestment Significant positive correlation;(2)the higher the quality of internal control,the weaker the positive correlation between free cash flow and over-investment;(3)the weakening of the correlation between free cash flow and over-investment in internal control quality in different property rights The performance under the nature is different,the specific performance is that the non-state-owned enterprises are the strongest,the local state-owned enterprises have declined,and the central enterprises are not significant.(4)The weakening effect of internal control quality on the correlation between free cash flow and over-investment is different in different regions,the performance is the strongest in the eastern region,the central region is declining,and the western region is not significant;The empirical research results provide targeted recommendations for internal control construction,cash flow management,and state-owned enterprise reform among different property rights and regions in China.Different from the existing research,this paper divides the sample into central enterprises,local state-owned enterprises and non-state-owned enterprises according to the nature of property rights.It is divided into eastern regions,central regions and western regions according to different regions,and the quality of internal control in different samples is studied.Whether the governance effect of the relationship between free cash flow and over-investment is consistent,provides a new perspective for the governance of over-investment and the construction of internal control.