Empirical Research On The Sensitivity Of Investment-Internal Finance In Chinese Listed Companies

The Modigliani and Mille theory regards the capital market as perfect and the neoclassical theory ignores important effects on the financing factors on corporate investment.But the perfect market is not existent,and corporate investment decisions are affected by financial constraints which arise when there are imperfection in capital market,such as asymmetric information,managerial agency problems and transaction cost.Under financial constraints,corporate investments are sensitive to internal cash flow.Drowing on the previous studies,the paper choose listed companies as research sample, examining the relationship between corporate investment and internal fund in China stock market.Based on analysising the information asymmetry and cash-flow theory,the paper further discusses investment-cash flow sensitivity and the inhere motivation of corporate investment behavior.The paper selected company size and ownership structure as financing constrain.By different measure of financing constraints the paper study the relationship between investment and the cash flow.The paper used company size and industyies with asset structure as asymmetric information control variables, and selected share concentration and the proportion of independent directors to reflect the free cash flow agency problem,and choosed managerial shareholding and financial leverage as asymmetric information theory and free cash flow agency costs control variables to exam motivation of the sensitivity between the investment and the internal fund .The paper selected 2sls method of return to empirical study in order to eliminate the impact of endogenous variables.The results showed that investment spending significantly dependent on internal cash flow.The degree of this constrain is deeper when financial constraints are measured by the company size and ownership structure the sensitivities are more serious. As for the inherent motivation, the result shows that both the information asymmetric theory and free cash flow agency cost theory can be general supports, while the information asymmetric theory is more serious in the companies. With the influence of the company size and industyies with many tangible assets , inherent motivation of investment and internal financing is not because of the information asymmetry. To financial leverage for the control variables the sensity is because of information asymmetry and agency cost.The control variables stock concentration, the proportion of independent directors and the managerial shareholding failed to test the cause of sensitivity.Finally,this paper suggests some recommendations as references to the situation of Chinese capital market and listed companies.