An Empirical Study on the Influence of Corporate Governance on the Investment Efficiency of Listed Companies- From the Perspective of Free Cash Flow

  • Yipeng Feng, Chanjiang Lu, Yupeng Chen, Fei Du
Keywords: Investment efficiency, Corporate governance, Free cash flow, Financing constraints, Regression model

Abstract

This study using the data of 351 manufacturing companies listed in Shanghai and Shenzhen from 2007 to 2018, established the estimation of investment efficiency and the regression model of free cash flow and investment efficiency on the basis of investment-cash flow sensitivity,. Subsequently, From the perspective of free cash flow, this study investigated the influence of corporate governance on investment efficiency using regression analysis. The main findings and conclusions were presented as follows: for companies without financing constraints, abundant free cash flow was easy to cause overinvestment; while for companies subject to financing constraints, free cash flow may alleviate the underinvestment of companies. As for overinvestment, the equity balance, board of directors, board of supervisors, and executive compensation in corporate governance can effectively restrain overinvestment induced by free cash flow, and the governance effect of separation of two positions was not obvious, while the ownership concentration, the proportion of independent directors, and the management shareholding did not function obviously; for the underinvestment, only the separation of two positions can effectively promote the alleviation of free cash flow on the underinvestment, and in contrast, the equity balance and the management shareholding showed an insignificant promotion effect on the alleviation of underinvestment.

Published
2020-09-29
How to Cite
Yipeng Feng, Chanjiang Lu, Yupeng Chen, Fei Du. (2020). An Empirical Study on the Influence of Corporate Governance on the Investment Efficiency of Listed Companies- From the Perspective of Free Cash Flow. Design Engineering, 247 - 267. https://doi.org/10.17762/de.vi.624
Section
Articles