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Relationship of cash flow and the value of listed companies

Author: XiaXueHua From: www.yourpaper.net Posted: 2009-07-10 17:48:40 Read:
Summary: listed companies in Shanghai real estate industry for samples taken Empirical Analysis Method of cash flows and the listed company value relationship. The empirical results show that the presence of a significant positive correlation between the cash flow position and the value of the listed companies. Therefore, it is necessary to strengthen the management of cash flow, ability to obtain cash and debt repayment capacity, improve operating activities; same time, to develop a reasonable sales policy to improve sales ability to obtain cash, in order to achieve the enhancement of the value of the company.
Keywords: listed companies; cash flow; company value; empirical analysis
1 INTRODUCTION

The point of view of modern financial theory, the so-called value of the company is the ability to provide after-tax cash flow of an asset or the claims of their respective owners, and that access to the sum of the present value of the cash flow in the future with the existing business, whether shareholders or creditors want to receive cash in the future, the value of the company is essentially the concept of a cash flow trade-offs. Cash flow reflects the quality of the company's revenue, the company's income determines the quality of its intrinsic value, the value of the company's judgment is ultimately dependent on cash flow. The level of quality of the company's cash flow has a direct impact on the value of the listed companies. Level of indicators to measure the quality of cash flow:
(1) Operating activities Net cash flow structure. The structural analysis of the net cash flow, net cash flow generated by operating activities, investing activities, financing activities generated net cash flow comparison, the sources of funds for a certain period of time to run the analysis firm, its composition, and then you can understand the company's cash the ins and outs of cash receipts and payments, and evaluation of business conditions, the ability of the cash, the fund-raising ability and financial strength. In general, the greater the proportion of operating activities Net cash flows accounted for a total cash flow, the company's good operating condition, low financial risk, cash flow structure is more reasonable.
(2) cash flow per share. Cash flow per share implies that listed companies maintain Beginning cash flow situation, the maximum amount of cash dividends distributed to shareholders. The indicator reflects the company's dividend payout.
(3) Cash flow ratio. The indicator reflects the company's solvency, facilitate the investors and creditors to determine the company's debt risk. In the company's production and management process, often borrowing to make up for the lack of its own funds. Debt based on debt service as a prerequisite for, if the company expires not debt service, production and operation will be in trouble, as well as endangering the survival of the company.
(4) operating activities per share cash flow. The indicators reflected from a cash flow point of view, the output efficiency per ordinary share and distribution levels, reflecting the company's actual ability to pay dividends and capital expenditures. Since the calculation of cash flow from operating activities per share does not involve subjective choice of accounting policies, thus the analysis of the indicators are more telling than the analysis of earnings per share to the company's ability to create value.
(5) the price of the current ratio. The indicator reflects the company's profitability, the price is now higher the ratio, the greater the value of the company. Many investors have been using the price-earnings ratio as an investment selection indicators, actually it drawbacks, because the earnings per share is vulnerable to manipulation. Alternative to cash flow from operating activities per share Earnings per share better reflects the authenticity of the value of listed companies.
(6) sales cash ratio. Sales cash ratio reflects the ability of the company through the sale of access to cash, the higher the index, the greater the value of the company. In addition, the indicators show that the company gains the gold level, reveals the quality of a company's profitability, so it is the dominant role in the cash flow analysis.

2 Review of the literature

Research on the value of the company, Myers, Jensen McConnell & Servaes analysis of company debt structure, ownership structure of the company value, and Tobin 'Q value as a measure of the value of a company. The work in this area since 1976, Jensen & Mecking began in the capital structure of the agency cost theory of inheritance of empirical research; another analysis from the point of view of the corporate governance structure of the value of the company and the company's operating performance, Shleifer & Vishny (1986) that, if the shareholders of the Company is divided into two types of internal shareholders and outside shareholders, the value of the company depends on the internal shareholders' share of the company's shares in the ratio of internal possession of the company shares to shareholders greater the proportion of the value of the company's higher; They also found that the value of the company and the shareholding structure has a positive correlation; La Potrta (1986) to the conclusion to support also from the point of view of the legal system and investor protection.
Myers (1997) suggested that the value of the company by the company's present value is the present value of the future growth of value, and that the growth in value of the company is the option price of the real value of the company's existing assets, and the price includes the company's existing The value of the assets and the company's expectations for future value, so the actual sale or option price is higher than the price of existing assets, the higher part, is the present value of the growth in the value of the company on the market. Myers also pointed out that the value of the company's growth and corporate liabilities and equity structure correlation exists; give up too much of the company's liabilities will make corporate managers more positive NPV projects, reduced foreign investment, some good growth liabilities abandon development opportunities, reduce the value of the company's growth.
Jensen & Mecking (1976) from the point of view of modern finance with debt, the analysis of the relationship of the company's liabilities and the value of the company, debt financing can inhibit the personal value of the target company's managers, the company has played a role in reducing agency costs, thereby enhancing the company's operating performance and value of the company. Myeong-Hyeon, Cho (1998) studied the relationship between the ownership structure, investment, and the value of the company. The regression results show that ownership structure affects investment, thereby affecting the value of the company.
At present, the research on the value of the company are mainly from the company's governance mechanisms, capital structure and shareholding structure. Options, corporate, Song Yong (2001) sample of 20 listed companies for the appliance industry analysis of the ownership structure and corporate value, the results show that the equity structure and value of the company had no significant correlation. Chen Xiao a single Xin (1999) from the point of view of the capital structure research results show that due to the lower cost of debt financing, the proportion of debt financing has a positive correlation with the value of the company. Cash flow and the value of listed companies, the exposition of the analysis is yet to be seen. With the development of market economy, the increasingly close ties between the value of the company and the cash flow, cash flow indicators is increasingly becoming an important criterion for the evaluation value of listed companies. This paper for the study of listed companies in Shanghai real estate industry, and the exclusion of ST PT, select the 2003 - 2005 annual report empirical data analysis to study the relationship between cash flow and the value of listed companies. 3 of a listed company's cash flow and the value of the company on the Shanghai stock market real estate industry relations Empirical Study

3.1 The variable design and model selection
Relative value indicators that Tobin's Q to measure the value of listed companies, the method of reference Mitchrll & Lehn, approximate that Tobin's Q = (float market capitalization company non-tradable market capitalization plus debt book value) / book value of assets stock market, the use of the Dec. 31 closing price instead of the per share value of the outstanding shares, the per share value of net assets per share instead of the non-tradable shares, respectively, multiplied by the number of shares outstanding and the number of non-tradable shares, float market capitalization of the company and non-tradable market capitalization. Also selected six indicators as explanatory variables shown in Table 1.
3.2 Empirical results and analysis
The value of the company as the dependent variable, X1-X6 six indicators as the independent variable multiple linear regression analysis, stepwise regression analysis, removed to parse a variable is not significant, and inspection, respectively, to obtain the following regression model, detailed in Table 2 and Table 3.
Regression analysis showed: operating activities Net cash flow structure, cash flow ratio, and the sale of the cash ratio has a significant positive correlation between the value of listed companies of the industry. This indicates that, the higher the proportion of operating activities Net cash flow in the total net cash flow, the greater the cash flow ratio of sales cash ratio, the greater the value of the company. Therefore, it is necessary to strengthen cash management, to ensure the sustained, healthy cash flow, orderly turnover, the protection of the normal operation of the business activities in order to improve the ability to obtain cash from operating activities and debt repayment capacity. The same time, it is necessary to develop a reasonable sales policy to improve sales ability to obtain cash, in the credibility of the case without prejudice to the enterprise, as soon as possible to accelerate cash collection rate and delay the payment of cash.
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