A Study On The Sensitivity Of Cash Flow In China 's Listed Companies

With the development of company capital structure theory, investment-cash flow sensitivity has been comprehensively study by the academy. Since Fazzari first documented this phenomenon in1988, researchers have been debating on the relationship between investment and internal cash flow and the reason behind. Investment-cash flow sensitivity refers to the phenomenon that company faces outside financial constraints on imperfect market, causing its investment relying on internal cash flow. The reason that causes investment-cash flow sensitivity can be categorized as the underinvestment under the asymmetric information theory and overinvestment under the agency problem theory. Both will induce higher cost of external financing, causing company to use internal cash, thus causing the sensitivity.Public companies in China have different characteristics in investment-cash flow sensitivity because of different nature of property right and corporate governance. This paper chooses578listed manufacturing companies as sample and divided them into groups by the nature of property right and corporate governance. Base on descriptive statistics, correlation analysis and variable regression, this paper study the investment-cash flow sensitivity problem and the reason in public companies in China in various aspects.The empirical results show that:(1)the investment-cash flow sensitivity problem exists in public companies in China;(2)private enterprises are more financially constrained, showing a higher investment-cash flow sensitivity than state-owned enterprises;(3)for the reason of investment-cash flow sensitivity, state-owned enterprises show the overinvestment of agency problem while private enterprises show the underinvestment of asymmetric information;(4)the level of corporate governance has an impact on investment-cash flow sensitivity. Companies of lower level of corporate governance have higher sensitivity. However, the level of corporate governance cannot very much explain the reason. The result stays the same for both state-owned and private enterprises.