Effect Of Financial Flexibility On Corporate Investment

This study examines the impact of financial flexibility on the corporate investment of Shanghai and Shenzhen stock exchange main board A-share listed companies, mainly to help the company’s management and external stakeholders to better understand the links between macro-economic cycle and micro-enterprise, and provide theoretical reference for company managers’better and more effective management and external stakeholders’better finance and investment. We employ in a sample of 15357 over the period 2000-2013, and the sample time is divided into the following three economic periods:2000-2006(pre-crisis period); 2007-2009(crisis period); 2010-2013(post crisis era), the samples are 6607,3638,5112 respectively.The result shows that, China’s mainboard A shares of listing Corporation exists sensitivity of investment to cash flow, and using debt to asset ratio for the measure of financial flexibility is more reasonable. We further found that, in the 2000-2006(pre-crisis period) economic periods, there has a significant difference on investment’s average value between low leverage firms (LL firms) and high leverage firms (HL firms), which means that financial flexibility has a significant effect on corporate investment, and high financial flexible firms’(Low Lev firms:LL firms) investment level higher than the low financial flexible firms’(High-Lev firms:HL firms). At this stage, low leverage firms’(Low Lev firms: LL firms) cash flow sensitivity of investment is higher than high leverage firms’(High-Lev firms:HL firms). In the 2007-2009(crisis period) economic periods, there has a significant difference on investment’s average value between low leverage firms (LL firms) and high leverage firms (HL firms), which means that financial flexibility has a significant effect on corporate investment, and high financial flexible firms’(Low Lev firms:LL firms) investment level higher than the low financial flexible firms’(High-Lev firms:HL firms). At this stage, low leverage firms’(Low Lev firms:LL firms) cash flow sensitivity of investment is higher than high leverage firms’(High-Lev firms:HL firms), but the decline in the proportion is higher, it means that financial flexibility reduces the cash flow of investment to a certain extent. In 2010-2013(post crisis era) economic periods, there has a significant difference on investment’s average value between low leverage firms (LL firms) and high leverage firms (HL firms), which means that financial flexibility has a significant effect on corporate investment, and high financial flexible firms’(Low Lev firms:LL firms) investment level higher than the low financial flexible firms’(High-Lev firms:HL firms). At this stage, low leverage firms’(Low Lev firms:LL firms) cash flow sensitivity of investment is lower than high leverage firms’(High-Lev firms:HL firms), which means that in the post crisis era financial flexibility reduced the cash flow sensitivity of investment, and improved corporate investment efficiency.In general, in the 2000-2006(pre-crisis period),2007-2009(crisis period), 2010-2013(post crisis era):In terms of China’s mainboard A shares of listing Corporation, using leverage for the measure of financial flexibility is more reasonable. Financial flexibility has a important influence on corporate investment, and high financial flexible firms’(LL firms) investment level are higher than the low financial flexible firms’(HL firms); Financial flexibility has an important influence on the company’s investment efficiency, it reduces the cash flow sensitivity of investment and improves corporate investment efficiency, especially in the post crisis era.