Investment decision-making as one of the core contents of corporate finance theory and practice of decision-making, relates to enterprise resource allocation, therefore a natural inference is that how is the efficiency of investment and return on investment? In investment decisions or capital budgete, a basic principle is to investigate whether investment income more than the capital cost, consequently, the level of capital cost often determines the feasibility of investment projects. Whether the Neo-classical investment theory in the macroeconomic field or the MM theorem in corporate finance field, the corporate cost of capital and investment income in the perfect market are given in advance of external, and usually we use the market interest outside instead of the cost of capital, so the rising of capital cost will naturally lead to decreased investment. However, because of information asymmetries and agency costs, corporate external financing is usually accompanied by additional financing costs, sequentially , corporate under different nature and characteristics have different costs of capital, which is affected by the external environment. Moreover the capital cost does reflect the company's minimum rate of return on internal investment projects. While the selection and analysis the company towards investment projects, largely reflect the entrepreneurship and corporate strategy judgments, so the impact of capital cost on the investment size will not be a simple monotonic negative relation.In modern investment decisions, the company financial constraint is a very important issue. To meet the investment needs of uncertain future, and overcome the internal cash flow volatility, the company needs to hold enough cash, so comes the question that do cash holdings affect the relationship between corporate investment and its cash flow. Cash holdings will result in value loss as it can be regarded as the opportunity cost, but on the other hand, as it can ensure the payoff of high income projects in future, it is worthy of holding. Therefore it is necessary to do in-depth analysis of the relationships among the listed company's capital costs, cash holdings and the investment behavior based on the economic characteristics of transition, to prove the accumulation of knowledge for financial theory and the evidence of Chinese experience.The core of this paper are the investment behavior and the efficiency of investment. More over the paper thoroughly and multiplely discussed the relationships among the cost of capital, cash holdings and investment decision-making. In the first phase, the paper discusses the affect of capital on the company cash holdings; second analyzes the affect of cash holdings on corporate investment under financing constraints; finally investigates how the cost of capital affects corporate investment, and analyzes the relationship between company's liquidity and its return on investment. This paper includes six parts.The first part gives the issue to analyze, research perspective and research methods of this paper; defining the basic concepts of this research field, so as to provide necessary theory bedding and analysis premise for further research.The second part introduces the development of related theory and does background analysis. In this section, the enterprise investment theory are reviewed along the time sequence firstly and it discussed the relationship between capital cost and the size of corporate investment. Secondly, it analyzes and reviews the cash holdings and corporate investment under financing constraints. Thirdly, the corporate current behavior of cash holdings is reviewed both theoretical and empirical in detail, and the conflict and reasons between the different theories are also analyzed.Finally, it gives the calculation of the cost of equity capital in current mainstream theory of capital cost,and discusses the definition as well as the related theories of investment efficiency combined with the cost of capital.The third part mainly introduces how the capital cost of the policy impacts the company's cash holdings. First, we estimate the capital cost of listed companies, and discuss the impacts of capital cost on company cash holdings under different financing constraints; Second, it analyzes how the capital cost impacts the company's cash holding behavior, the marginal effects of financing constraints to the capital cost - cash variation, and the sensitivity coefficient of cash flow under different financing constraints in this process; Finally, we also estimated the cash holding value of listed companies and the affect of capital cost to cash holdings value.The fourth part focuses on impact analysis of cash holdings on investment behavior. First it constructs a theoretical model to discuss the effect of cash holdings on investment decision-making, then empirically analyzes the relation between cash holdings and the investment - cash flow sensitivity,and excams the stability from a different perspective of financial constraints; second it discusses whether cash holdings induced company over-investment, and the role financing constraints played in this process; Finally, we also analyzed if the company cash holdings affect the economic consequences of investment.Part V focuses on the affect of company's capital cost on investment behavior and investment efficiency. First four methods are used to estimate the equity capital cost and the weighted capital cost of listed companies and are compared; in the following we study in-depth the relationship between the capital cost and investment level, and test the stability using different cost methods. Second, combined with investment returns, we look for the dynamic reason behind the capital cost and the change of investment size; finally, from a cash holding policy angle, we discuss to what extend different financing constraints influence the relationship between the investment level and the capital cost, and further we find the effect of the investment return of cash holding policy in different cash flow volatilits.Chapter 6 comes up with conclusion, limitations and future research prospects. In this section, we summarize the conclusions of the last parts of the paper and put forward the view on limitations and directions for further research.The innovation points of this paper are:â‘ Proceed directly from the capital cost for the first time, to discuss the company's cost of capital directly on the company's cash holdings, holding behavior and value of cash holdings. Found that: the higher the capital cost is the more cash company will hold, which directly refused cash balance theory hypothesis; the higher the overall capital cost of the company is the more cash it prefer to hold, but the marginal effects of capital cost in companies with different financial constraints are not consistent ; but the higher the capital cost is the more cash the company is inclined to hold, and financing constraints would reduce the excess cash holding marginal effect of the capital cost; we estimate the average cash holdings of listed companies valued at about 0.52 yuan, of which the group who has higher cash holdings has lower value, and the cost of capital has a positive effect on firm value; further in the over-current group, the high capital cost sample has a higher value of cash holdings.â‘¡It provides the empirical evidence for cash holdings on company investment decisions and economic consequences. Found:the cash holdings of company can ease the investment-cash flow sensitivity efficiently; more cash holdings can induce company over-investment while financing constraints can not effectively curb this behavior; the marginal value of corporate investment will decrease with the increase of cash holding size.â‘¢It analyzes the relationship among the capital cost, cash holding policy, corporate investment behavior and the return on investment. Found that: the capital cost and corporate investment are inverted-U shaped relationship, and is severe right-side, the fact differs materially from the traditional theory that the capital cost and investment size are negative monotonic related; investment returns and the lag phase of the investment behavior are significantly positively related to capital cost, which means the expectations of excess returns on future investments drives the company to enlarge the scale of investment when the capital cost increases; the cost of capital will reduce the role the cash holdings played in promoting the corporate investment; the more cash it holds, the higher the return on investment is, but the greater the cash flow volatility, the lower the investment return. |