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The Empirical Analysis On Relationship Between Investment And Cash Flow In Listed Company

Posted on:2012-07-31Degree:MasterType:Thesis
Country:ChinaCandidate:J ZhangFull Text:PDF
GTID:2189330332997607Subject:Accounting
Abstract/Summary:PDF Full Text Request
January 2007, Sunco China was swallowed up by the Hong Kong Road King with not more than 2 billion yuan for total value . Its popular "dark horse myth" would become a history. What makes the annexation of Sunco China? Where its problems come from? A decade ago, Sunco China started with half a million yuan, achieving success very quickly , and maintained high-speed and super-scaled expansion . Until 2005, potential problems of Sunco surfaced caused by rapid expansion . By that time, Sunco was lack of funds and Inability to refinance . Finally, because of lack of 1 billion yuan, Sunco turned from prosperity to declined and devoured by the Hong Kong Road King . In the end , Sunco's decline due to its improper investment and causing problems of cash flow. Companies similar to Sunco are very common in capital market of China. Then, What do cash flow of companies impact on investment? How investment depend on cash flow? When companies holding large amount of money, how to make investment decisions? When companies need capital investment, how to choose the kind of financing because internal and external information asymmetry? what kind of relationship about Investment, cash flow and finance? Whether cash flow will cause changes on enterprise value?……In response to these problems, this paper will study on the relationship between investment and cash flow. From the domestic empirical study about relationship between investment and cash flow , Feng Wei (1999), He Jingeng and Ding Jiahua (2001) and Jiang Xiuzhen (2004) studied respectively from different perspectives , and made achievements. From domestic study, they almost used cross-sectional data or mixed data .however , for companies from continuing operations, investment is a continuous behavior . So the findings may have limitations because of sample size restriction . Therefore, the paper on the basis of previous studies, using time-series data, select 30 quarter of 24685 listed companies as the object of study and established VAR model to study relationship between investment and cash flow in two dimensions of long-term and short-term .The paper focuse on whether it satisfy pecking order hypothesis ,and whether it support free cash flow hypothesis.Let asymmetric information theory as the theoretical basis of pecking order hypothesis and agency cost theory support free cash flow hypothesis, do the research on relationships of investment and cash flows in two dimensions .The samples use 30 quarters time-series data based on manufacturing companies from 4th quarter of 2002 to 1th quarter of 2010 . We select five variables such as long-term investments, cash flow, long-term debt, external equity financing,and Tobin's Q to establish models respectively for industries of manufacturing . We use cointegration test and impulse response analysis based on VAR model ,analyzing relationship between investment and cash flow of data and graphics in two dimensions of long-term and short-term. First, to meet the needs of investment funds ,the empirical results show that listed companies of industries are different in selections of financing order. For the long-term relationships, only electronics industry satisfy fully pecking order hypothesis;Three industry such as textile and garment industry,petroleum and chemical industry,and metal and nonmetal industry, partly meet pecking order hypothesis. For the short-term relationships, only food and beverage industry partly meet pecking order hypothesis. But some industries such as wood and furniture industry, paper and printing industry, machinery and equipment industry, pharmaceutical industry and other manufacturing industries do not meet pecking order hypothesis. Second, the empirical results show that there are free cash flow agency costs in most listed companies of industries. For the long-term relationships, food and beverage industry, wood and furniture industry, petroleum and chemical industry, metal and nonmetal industry, pharmaceutical and biotechnology industry and other manufacturing industry support free cash flow hypothesis . For the short-term relationships,electronics industry and machinery and equipment industry satisfy free cash flow hypothesis. However, textile and garment industry and the printing and paper industry did not support free cash flow hypothesis.
Keywords/Search Tags:Investment, Cash Flow, Pecking Order Hypothesis, Free Cash Flow Hypothesis, Vector Autoregression Model, Impulse Response Analysis
PDF Full Text Request
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