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Corporate Investment Investment-Cash Flow Sensitivity And Real Cash Flow Management

Posted on:2015-11-14Degree:MasterType:Thesis
Country:ChinaCandidate:D DongFull Text:PDF
GTID:2309330461488679Subject:Accounting
Abstract/Summary:PDF Full Text Request
Investment behavior is the starting point of enterprises, and also the leverage of enterprises’existence and development. Financing constraints, on behalf of investment theory, pointed out that the reality of the market is not perfect so that external funding and internal funds can not be completely replaced, high cost of external financing is the reason why companies have to rely more on internal funds if they want to make investments. In other words, if companies constrained with financing, they have enough motivations to increase internal cash flows by all kinds of means under the demand of invest. Cash flow management has been a hot issue in finance research area, while most related literatures only explore earnings management, and the study of real cash flow manipulation just focus on earning keeping, rationing shares, growth keeping, losses reversing and other upward motivation. As opposed to earnings management, real cash flow manipulation can manipulate the company’s cash flow, which relationship between the two topics is really worthy of being explored.Based on the extant literature, this paper verifies the relationship between cash flow management through real activities and corporate investment using China A-share listed firms’ financial data in years from 2002 to 2013. The results show that:First, there is a significant positive correlation between real cash flow manipulation and corporate investment. Specifically, the correlation between product management of real cash flow manipulation and corporate investment is significantly positive; the correlation between sales management of real cash flow manipulation and corporate investment is significantly positive.Second, generally speaking, there is a certain degree of investment-cash flow sensitivity among China’s listed companies. The regression results based on different levels of real cash flow manipulation groups showed a high degree of real cash flow manipulation sample group has higher investment-cash flow sensitivity.Third, the motivation tests for the investment-cash flow sensitivity of China’s listed companies show that:financing constraint is the main reason of the investment-cash flow sensitivity among China’s listed companies, while the reason that a high degree of real cash flow manipulation sample group has higher investment-cash flow sensitivity comes from cash flow hypothesis.This paper reveals the phenomenon of the financing constraints and free cash flow problems of China’s listed companies from the perspective of real cash flow manipulation. On one hand, it enriches the research in related fields at the theoretical level. On the other hand, it provides a reference for the improvements of the capital markets, regulatory policy and corporate governance.
Keywords/Search Tags:Real cash flow manipulation, Investment, Investment-cash flow sensitivity, Financing constraints, Free cash flow hypothesis
PDF Full Text Request
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