Financing Constraints, Cash Flow Sensitivity And Investment Relations

The investment decision and financing decision have been receiving the attention all the time. But investment decision,the main cause for corporation development,the crucial basis for future cash-flaw increase and the foundation for finance decision-making,influences the management risk, profit level,capital market's evaluation of company's management achievements and development prospects. But the investment behavior of the corporate is the important facter what affects the movement of the great microscopic economical and the activity of the capital market.Because of the informational asymmetry's existence, the enterprises will be restrained from outside financing due to the financing constraint. The corporate investment are affected under financial constraints, corporate investment are sensitive to cash flow.and The studying of the relationship between investment and cash flow has already become the hot spot in recent years.This paper carries on the elaboration through to the development of the investment's theory and the literature search of the domestic and foreign country. According to the typical model in the foreign countries, the paper establishes the investment model which this paper studies. The auhtor selects the listed manuafeturing companies of Shanghai and Shenzhen stock markets from 2004 to 2007 as samples, and examines the relationship between cash flow and investment. Meanwhile the paper chooses the fixed chagre coverage and the firm total assets size to the classified standard, researches the influence of the relationship bewteen the investment and cash flow under different financing constraints.The empirieal study shows there is a positive relationship bewteen investment and cash flow and financial constraints isn't the primary causation. But the Asymmetric information theory and Agency cost theory effect the relationship bewteen investment and cash flow. Moreover When the listed manafcturing companies are classified by the fixed chagre coverage, higher level fixed chager coverage fiugres less extenral financial constraints. The conclusion is that investment of financially constrained companies are more sensitive to internal cash flow than those of less constrained. But When the listed manafcturing companies are classified by the firm total assets size, The investment of the large-size company (the financing constraints is small) is more sensitive to internal cash flow to relative to the smal-size company. Finally pointing out the insufficiency of the research conclusion, andputting forward the corresponding proposal and the forecast.