Study On Investment Cash Flow Sensitivity With Financial Constraints

The financing mode based on asymmetric information has been the focus in the field of academy, because it is necessary to developing the enterprises. The appropriate timing is the key reason for making investment plan. When dealing with projects expected highly, the endogenous financing outweighs all other considerations. On the premise of meet the safety requirements, the enterprises would raise capital from outside when there is not enough money to satisfy the demand. But the capital market is not perfect to finance from external, because of the reasons such as asymmetric information and transaction cost. As a result, it is necessary to consider the restraints of financing constraints on investment.Due to the high cost of financing from external, the correct estimation in market change must be worked out for the appropriate timing. In this paper, investment threshold assays the optimal investment timing qualitatively based on theoretical analysis, then the function expression of the financing cost from external and the cash flows is established, and its derivative is studied for the hypotheses of the paper. Secondly, the data of listed manufacturing companies from 2005 to 2009 is chosen as the study samples, then the growth rate of investment is dependent variable, the cash flow ratio Q is the variable, and the investment timing assayed by Tobin Q is the control variable. According to the effect mechanism of financing constraints, the samples are classified respectively by the age of enterprise, assets, the times interest earned ratio of cash flow, and the standard difference rate of expected income, then the sensibility is analyzed by regression function based on financing constraints. Finally, the conclusion is drawn that the relationship between the cash flow ratio and the growth rate of investment is non-monotonic, which could be the basis for choosing the right opportunity of investment.