An Empirical Analysis On The Factors Of Investment Cash Flow Sensitivity

When the amount of investment has been affected by the volatility of internal cash flow,it indicates the existence of investment-cash flow sensitivity.According to researches home and abroad,the financal constraint theory and the free cash flow hypothesis are the most powerful explanation to the sensitivity.The former one is suggested mainly because of the information asymmetry in the market. That the theoretical basis of the latter is the principal-agent theory, namely:agency costs between investors and managers.Investment-cash flow sensitivity study originated in foreign academic circles. In the western developed countries,the development of the market economy have a long time,and the structure of the capital market is relatively well,so the theory is more abundant,that provides a convenient for the study,investment-cash flow sensitivity is becoming a hot topic of foreign theorists and practitioners.In recent years,Chinese capital market is gradually on the rise and matured.Chinese scholars begin to focus on investment-cash flow sensitivity,and most of them follow the ideas of foreign scholars. In addition,because of the special situation of our country, there are many own characteristics in Chinese market economy,which is compared with developed countries.The investment-cash flow sensitivity in our country is affected by some special factors,such as the nature of the enterprise,so it needs our theory and practical circles to discuss.In China, the study for investment-cash flow sensitivity has a late start,and most of the theoretical results are the validations of the foreign research results.In addition,most studies focus mainly on the motherboard market,but there is lack discussion for SME,which is the slow development of systems and not perfect. However,SMEs is a major component of the Chinese market,and they make a significant contribution to the Chinese economy. So I make a sample with small plates listed companies, and this paper will discuss the investment-cash flow sensitivity from the point of view of corporate performance,in order to provide a guidance for their investment behavior,and help small and medium-sized enterprises board to improve the management and the investment environment.This paper includes the following sections based on research needs.First of all, the introduction of the research background and significance includes theoretical background,realistic background of theoretical and practical significance;overview of the research framework of the research the content and purpose of the article; research methods and expected contribution.In the literature review section,I describe two question:the one is about the existence of the sensitivity,the other one is the reason of the sensitivity, and find that the current study generally support point of view,that there is sensitivity.But the conclusions of the study of the reasons that caused it have been inconsistent, and also caused a debate in academia over a period of time.With needs of this paper,it details the pecking order theory,asymmetric information theory,principal-agent theory,theory of financing constraints and free cash flow hypothesis.Through theoretical analysis in reality due to asymmetric information,the cost of internal and external financing is different,there may be financial constraints in the company.Another situation is due to the presence of agency problems and management opportunism, sufficient free cash flow is used by the company to excessive investment. However,the poor performance of small plates listed companies are more prone to financing constraints. In the good performance of the company, the management control a lot of free cash flow, and invest invalidly to personal gain.This paper uses the dates from2008to2011of listed companies of small and medium board as a sample,using empirical methods to test the hypothesis.Firstly I verify that the sensitivity exists in small plates listed companies before joining the item which is generated by performance indicators multiplied by the cash flow items to examine the reason of the sensitivity in enterprises that have different levels of performance. In order to select an objective and reasonable performance indicators,I use principal component analysis to extract performance indicators. First I checked correlation among various performance indicators,found that the selected indicators suitable for using principal component analysis.Then I put the generated performance indicators into the model regression analysis and observed the coefficient symbol of the multiplying items to explain the regression results and test hypotheses.Accourding to the study,I found that the enterprises with the poor performance was persecuted by severe financial constraints,so there was sensitivity.And I also found that the enterprises with good performance often retained free cash flow and existing agency costs which caused sensitivity.There is some innovation.Early literature often used Tobin’s Q and other profitability indicators to measure investment opportunities for study,but profitability indicators do not fully reflect the overall strength of the companies, and thus as an alternative indicator of investment opportunities,it is improper. In this paper,I considered to use the performance indicators to replace the profitability indicators.In order to avoid that a single indicator can not reflect the whole picture, and a variety of indicators are difficult to choose,I use the principal component analysis and comprehensive consideration of the level of performance from all aspects of the solvency,profitability and development capacity.In addition, previous studies had focused on the Main Board of the enterprise,this paper choose small plates listed companies as the research object, and compared with the conclusion from the study used data of the motherboard to make recommendations to improve the status quo of small plates listed corporate investment.