Research On Sensitivity Of Investment And Cash Flow In Domestic Listed Companies

The sensitivity of investment and cash flow is the hotspot of the modern western financing theory research. Usually, the undulation of cash flow will affect investment scale of a corporate. There are two theories that can explain the main causes of sensitivity of investment and cash flow: information asymmetry theory and the hypothecs of managerial. Information asymmetry theory thinks that the main cause of sensitivity of investment and cash flow is that inside and outside of corporate possess different information, and this makes corporate prefer interior financing to exterior financing, and causes the positive relativity between investment and cash flow. The hypothecs of managerial thinks that because of the agency problem between management and shareholders, management of corporate may invest some projects with negative present value in order to increase personal benefit. So, we analyze the sensitivity of investment and cash flow in domestic listed companies, and analyze the main cause of sensitivity in domestic listed companies through empirical research in order to provide some empirical data and experience for domestic listed companies.We analyze the two theories that explain sensitivity of investment and cash flow on the basis of domestic and foreign researches, and analyze the similarities and differences of the two theories. We set up the empirical research model that is suitable for domestic listed companies on the base of the relative models, we use our model to analyze weather there is sensitivity of cash flow and investment and the main cause of the sensitivity. Using the data of domestic manufacturing listed companies on Shanghai stock market between year 2002 and 2003, we make the empirical research on the sensitivity of investment. We first verify sensitivity of cash flow and investment in domestic companies, then we use the model with Q,proportion of management shareholding or ownership concentration to test the main cause of sensitivity in domestic listed companies. Our research have found that: (1) there is a sensitivity of investment and cash flow, and selection of cash flow variable has little effect on the conclusion of the empirical research; (2) the main cause of sensitivity of investment and cash flow can be explained by the hypothecs of managerial. Whatever the base we build our research on, the conclusion agree with the hypothecs of managerial behavior, namely that domestic listed companies have problems of excess investment.