The Impact Of Financing Constraints On Investment In Listed Companies In China

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 imperfections in capital market, such as asymmetric information, managerial agency problems and transaction cost. Under financial constraints, corporate investments are sensitive to internal cash flow.The paper chooses listed manufacturing companies as research sample, examines the relationship between corporate investment and internal fund in China stock market by introducing financing factors into the investment model. Based on the research on the whole sample, the paper measures financial constraints with fixed charge coverage and firm size, which segment the sample, and further discusses investment-cash flow sensitivity and the inherent motivation of corporate investment behavior.The empirical study shows that corporate investments are sensitive to the internal cash flow. The degree of this sensitivity is deeper when the financial constraints measured by the fixed charge coverage are more serious. Besides, we find that larger companies' investments are sensitive to the internal cash flow while smaller companies' investments are not. But when the firm size reaches at the certain high level, the internal cash flow doesn't exert important influence on the corporate investment. As for the inherent motivation, the finding shows that both the information asymmetric theory and free cash flow agency cost theory can be general supports, while the agency cost problem is more serious in the largest and smallest companies. Finally, this paper suggests some recommendations as references to the situation of Chinese capital market and listed companies.