Study On Ineffective Investment In Chinese Listed Companies Based On The Financial Flexibility Index

Financial flexibility is generally defined as the ability of a firm to deal withoccurrence of uncertain emergency and grasp the favorable investment opportunity in thefuture. As one of the most important determinants of capital structure decisions, financialflexibility is important to the firms. Investment is the source of enterprises’ development,how to improve the investment efficiency has been one of the most concerned topics inacademic and practical circles. Financial flexibility index and Richardson’s residual modelare used to measure the relationship between financial flexibility and ineffectiveinvestment, in order to provide a new thought for existing research.Based on manufacturing listed companies in Shanghai and Shenzhen Exchange, thispaper takes408listed companies from2001to2004as a sample, selects a total of1632data to do statistical regression analysis. This paper calculates the financial flexibilityindex and inefficient investment index first, and then analyzes the relationship between thetwo indexes. According to the empirical study, we find:(1) Enterprise leverage andexternal financing cost have a negative correlation to financial flexibility; there is apositive correlation between financial flexibility and the cash index.(2) The company’sinvestment spending decision and its cash holding level, profitability is positive related.By the influence of economic environment, investment spending and the company’s debtlevel are also positive related.(3) Non efficiency investment behavior are widespread inthe companies. State-owned enterprises are more likely to appear the phenomenon of lackof investment.(4) Financial flexibility index can improve the company’s investmentefficiency, financial flexibility index and the efficiency investment index is negativecorrelation.(5) Insufficient investment often arise in listed companies with extremely highor low financial flexibility．...