Empirical Study Of Financial Constraints' Influence On Chinese Enterprises' Investment Behavior

According to the theory of Modigliani and Miller (1958), in a perfect financial market, listed companies'internal funds and external funds can be substituted undifferentiated. However, in real world financial markets, asymmetric information is a common phenomenon, it is difficult for financial intermediations to get all relevant information about the companies who ask for credits. As the survey cost for uncovering the listed company's financial condition is too high, financial intermediations like banks have to restrict listed companies'lending amount, or raise interest rate to safeguard their own interests. All those restrictions mean that the external financing cost of listed companies is higher than their internal financing cost; this is how the financial constraints problem emerged. Facing too high financial constraints, may influence the financial market's operating order, or even cause confidence crisis. From 90s of the last century, many national and foreign professors'began to study the, tied to find out the way to promote financial market to operate orderly.My essay's focus is that: Considering the particularity of Chinese financial market, to study the relationship between financial constraints and enterprises'investment behavior. Chinese financial market's self regulation ability is not so good, so it is difficult for listed companies to achieve survival of the fittest through market competition. One of the most important practical significance of our essay's empirical study is that, whether national macro-control can make up the deficiencies on resource allocation function of Chinese financial market.Our essay's data come from the annual financial statements data of Chinese listed companies, from 1999 to 2009. In the year 2005, in order to enhance the operating order of financial market, government began to implement the macro-regulation of split share structure reformation. Our study compared the listed companies' investment behavior of two time spans (one from 1999 to 2004, the other from 2005 to 2009) to observe whether the macro-regulation of split share structure reformation will reduce the extent of listed companies'financial constrains, and enhance the operating order of financial market.My empirical study is divided into two steps:Firstly, use the logistic regression method in SPSS V13.0 software, to integrate several financial indicators into a single indicator to measure the extent of financial constraints, to quantify the degree of the sample companies'financial constraints. Secondly, use the Panel Data model in Eviews6 software to build a panel model which reflects the investment-cash flow sensitivity of listed companies, to analysis that under different extents of financial constraints, the difference of listed companies'investment behavior, and study the influence of split share structure reformation on listed companies'investment behavior.The final conclusion of our study shows that:1. For the time spans from 1999 to 2004, as the extent of financial constraints enhanced, the investment-cash flow sensitivity showed "U" shaped movements. That is, in the environment of high and low financial constraints, the listed companies' investment-cash flow sensitivities are both higher than in the environment of middle financial constraints.This conclusion indirectly confirmed the Vogt (2005) theory. As the principal agent factor exists in financial market, even if the financial constraints extent is low, managers intend to over-investment, invest excess internal funds into projects with higher investment risk, expecting to increase personal interests. So the investment activity is frequent and the investment-cash flow sensitivity is still high, even the financial constraints extent is low.2. For the time spans from 2005 to 2009, financial constraints and investment-cash flow sensitivity is positively correlated. That is, as the extent of financial constraints enhanced, the extent of investment-cash flow sensitivity is also enhanced.This conclusion proved that, the national split-share structure reform in 2005 does have some practical significance for the financial market orderly operating. The hazard problem of listed companies caused by symmetric information has improved. That means in a certain extent, our national macro regulation can compensate the financial market's imperfect functions.For reducing the extent of financial constraints problem faced by the listed companies, and enhance the operating order of national financial market, this essay do has some practical significance. The deficiency is that the split share structure reformation is not the only factor which influences financial market's operating order; there may have other factors which also influence financial market's operating order, and our study didn't include all these factors into our empirical study model. In further research, we still need to improve these shortcomings.