Investment Behavior Of China's Real Estate Listed Companies

Real estate industry is an independent department in social economy and has been the pillar industry in China for long time. Since the abolishment of welfare distribution of houses, the real estate investment in cities has expanded a lot and more and more companies begin to engage in real estate industry. However, the overheat of the industry and structural distortion have induced strong reflection in the whole society and attracted the attention of goverment. The State-owned Assets Supervision and Administration Commission of the State Council requested 78 state-owned companies retreat from real estate industry, and increased the difficulty of financing of real estate companies. Because of the limit financing channel in domestic market, the real estate companies which depend on bank borrowings and presale money suffer from the deflation financing policy and tighter supervision. Meanwhile the uncertain macroeconomy and transmission systerm increase the volatility of cash flow of the industry. Howver the investment motivation remains high in real estate industry. On one hand, more and more adjustment measurement were implemented; on the other hand, more and more companies spend a lot of money to buy land for investment.The focus of this paper is the investment behaviour of individual real esstate company in such an uncertain economy and limited financing environment. The influencing factors of investment of real estate company is studied based on cash flow. First current investment theories are reviewed, and then the volatility of cash flow is added onto classic investment model and Tobin Q model. Companies are classified in two dimensions:size and main business. According to the size of total capital companies are classified as small size, median size and big size so that to investigate the influence of financial constraint on companies' investment. Then based on the main business companies are classified to operate on residential property or business property in order to research the influence of cash flow and its volatility on different properties. According to the empirical analysis of all samples in A share market from 2007 to 2010, we have the following conclusions:(1) Generally the investment-cash flow sensitivity of companies in real estate industry is relatively weak; (2) Companies of small scale would decrease investment because of financing constraints; (3)Cash flow volatility of residential properties is higher than business properties as well as their longing for capitals.