Listed Companies To Invest In The Financing Constraints And Cash Flow Sensitivity Study

With the continual development of the capital structure theory ,the topic of the relationship between investment and cash-flow under financial constraints has already become the focus discussion in recent years.In inefficient and incomplete markets, the cost of external financing will be different from internal financing because of the asymmetric information among market participants, agency problems, transaction costs and so on. Under this circumstance, firms' investment will depend on internal cash-flow in a certain extent. Besides, for the diversity of financial constraints among different enterprises, they have been demonstrated different characteristics in aspect of investment -cash flow sensitivity.This paper focuses on the relationship between investment and cash-flow under financial constraints. Concerning the reality of our country, the author selects the listed manufacturing companies of Shanghai and Shenzhen stock markets from 2000 to 2004 as samples and chooses the fixed charge coverage and triennium equal weighted ROE as the standard of financial constraints grouping to study detailedly the relationship between investment and cash-flow under diverse level of financial constraints with the help of descriptive statistic, analysis of variances and multiple variable regression. The purpose is to disclose the impact of the cash-flow fluctuation on the investment activities of the enterprises in face of diverse level of financial constraints.The paper reaches some conclusion as follows: (1) There is a remarkable positive relationship between investment and cash-flow and financial constraints is the primary causation. (2) When the listed manufacturing companies are classified by the fixed charge coverage, higher level fixed charge coverage figures less external financial constraints. The conclusion is that investment of financially constrained companies are more sensitive to internal cash-flow than those of less constrained. (3) When the listed manufacturing companies are classified by the triennium equal weighted ROE, higher level ROE figures less external financial constraints. The conclusion is opposite. Investment of financially constrained companies are less sensitive to internal cash-flow than those of less constrained.