Financial Flexibility And Firm Value

Financial flexibility is a new field of financial research in recent years, attracting more and more theoretical and practical circles’attentions. Financial flexibility concept is based on the uncertainty, reserving a company’s financial flexibility is by maintaining a certain idle funds and remaining borrowing capacity in order to cope with unexpected financial needs and investment opportunities. Obviously, financial flexibility reserves help businesses cope with the sudden change of events, and provide financial support for potential investment opportunities. Especially after the global financial crisis caused by U.S. sub-prime mortgage crisis in2007, the risk of financial distress caused by uncertainty and operational risk caused by intense competition in the market making the value of financial flexibility has become increasingly prominent. As foreign scholars Graham and Harvey shown in a result of a survey of European company’s CFOs, financial flexibility is one of the most important considerations in the company’s financial decisions. However, compared with other financial theory, financial flexibility has not been studied very well, there are many problems in the theory and practice we need to research and explore. Therefore, this thesis will start from the definition of financial flexibility, inspection of listed companies’financial flexibility reserves value effect, reserving financial flexibility will help enhance the firm value. Second, when faced with different degree of investment opportunities, the reserve value of financial flexibility is also a significant difference. Finally, according to different nature of the actual controller of listed companies, the sample is divided into state-owned and non-state-owned to discuss the difference of financial flexibility’s value. This study is mainly divided into the following five sections:The first chapter is an introduction. This part is mainly made up of the research background of the financial flexibility of the theoretical and practical significance, and on this basis, this thesis introduces the research objectives and contents, as well as the research methods and innovative points.The second chapter is the literature review section. This section first defines the concept of relevant, clearly sort out the financial proposal of the concept of flexible and continuous improvement process, meaning of the value of financial flexibility, and financial flexibility,"response","prevention" and "utilization" three essential nature, and the definition of investment opportunities and actual controller. Secondly, the chapter introduce the measure of financial flexibility, the value effect of financial flexibility, investment opportunities and financial flexibility, the actual controller and financial flexibility of the relevant literatures at home and abroad.This has not only clarified the theme of this study, but also laid the foundation for our study.The third chapter is the theoretical basis and assumptions. This chapter is to introduce the principal-agent theory and asymmetric information,these two basic theories, and theoretical analysis based on the basic theories. As the company reserves the financial flexibility and enable it to respond to adverse shocks and catch investment opportunities, so the proposed financial flexibility and firm value is related in our hypotheses. By the agency relationship and the existence of information asymmetry, as investment opportunities and the nature of the actual controller are different, the value of financial flexibility may be different.The fourth chapter is the empirical test. Based on the theoretical framework in the third chapter, this chapter will do the empirical test of the listed company’s financial flexibility. This thesis selects listed companies in Shanghai and Shenzhen A-share data for the year2007to2011as the study sample, the value of financial flexibility of a company as well as investment opportunities is not the same value for regression testing, and for the actual control of listed companies are different in nature, a grouping regression test will be done. Finally, according to the regression results analysis financial flexibility problems in Chinese listed companies.Chapter five are conclusions. Summarize the foregoing findings, the conclusions of this study, limitations and future research prospects. The objective situation in our country, respectively, from state and non-state-owned listed companies the standpoint of financial flexibility reserving policies and recommendations.In this thesis, on the basis of previous studies, trying to explain listed companies in China the value effect of the financial flexible. The main innovation of this thesis include:First, this thesis studies foreign research of financial flexibility for a detailed combing, summarize results of previous studies and inadequate. Explain financial flexibility from the perspective of agency and asymmetric information, combined with our country’s market environment to conduct a comprehensive and systematic theoretical analysis, drawing on classical models, based on the data of Chinese listed companies financial flexibility and firm value in our empirical research.Second, the thesis starting from the definition of financial flexibility, which helps the company reserves the unfavorable impact of the financial flexibility and investment opportunities. Taking into account that China’s listed companies facing different investment opportunities, the sample is divided into high investment opportunities combination and low investment opportunities set, testing when investment opportunities are different in listed companies, whether the value of financial flexibility is significant different.Third, combined with China’s institutional background to the actual controller of nature as the starting point, the listed company is divided into two types of state-owned and non-state-owned to study the different value of financial flexibility. According to the grouping situation, use the financial data of listed companies to do a re-test of the value of financial flexibility for these two groups.In this thesis, on the basis of previous studies, we use data of Chinese listed companies to test the value of financial flexibility systematically. From the empirical results,we can find: Chinese listed company’s financial flexibility is generally at a low level,it needs to be strengthened; Financial flexibility reserving have a positive effect on the value of the company, in other words, the company reserves the financial flexibility is valuable; Considering the differences in investment opportunities, we found that the more investment opportunities a company has, the value of financial flexibility is higher; Finally, according to the different nature of the actual controller, the sample is divided into two types of state-owned and non-state, our results showed that non-state-owned listed companies reserve financial flexibility with a higher value. These findings are in line with the theoretical analysis and our research hypotheses.