An Analysis of Financial Flexibility and Over Investment from the Perspective of Corporate Governance

Abstract

financial flexibility is a kind of ability for enterprises to timely mobilize funds to deal with uncertain matters, which has two sides. On the one hand, it is conducive to enterprises to effectively deal with crises and better grasp investment opportunities. On the other hand, maintaining an inappropriate level of financial flexibility will lead to more free cash flow and lower level of financial leverage, leading to more serious over investment of enterprises. Overinvestment is a manifestation of inefficient investment, that is, enterprises invest in projects with negative net present value, damaging shareholders' wealth and enterprise value. Based on the relevant data of Listed Companies in China, this paper takes over investment as the dependent variable, financial flexibility and corporate governance as the independent variable, establishes regression model and makes empirical analysis. The research shows that there is a positive correlation between financial flexibility and over investment, and the higher financial flexibility of a company will lead to over investment behavior; through the comparison of the regression results of high-level and low-level corporate governance, the higher the level of corporate governance, the weaker the impact of financial flexibility on over investment behavior.