Product Market Competition, Financial Flexibility And Corporate Performance

The study of financial flexibility is an emerging issue in financial management, and it gets more and more attention of theorists and practitioners recently. Financial flexibility means enterprises can deal with financial difficulties and grasp favorable investment opportunities by arranging the distribution of the number and distribution of cash flows in reason. It will enhance their ability to adapt and increase corporate performance. With economic globalization and China’s socialist market economy progressive development, product market competition that enterprises face is increasingly fierce. Product market competition makes business environment rapidly change and enterprises will face huge uncertainties in their future development. Facing with fierce product market competition, whether companies will deal with uncertain events by improving financial flexibility level. In addition, as a kind of external mechanism, product market can reduce agency costs through market surveillance mechanism and reduce information asymmetry. Therefore, this thesis will continue researching what effects will financial flexibility make on corporate performance. Based on, this thesis will regard product market competition as an entry point and intend to make depth and systematically research of the relationship of financial flexibility and corporate performance.This thesis is composed of five parts. Specific contents are as follows:The first part is introduction. This part mainly introduces the research background and significance. It also explains research contents, research methods and the innovations.The second part is literature review. This part firstly explains related research literatures at home and abroad, and then gives summary and review about these literatures, which will lay the foundation for the next theoretical analysis.The third part is the study on product market competition and financial flexibility. Firstly, we make theoretical analysis on product market competition and financial flexibility. And then on the basis of theoretical analysis we put forward hypothesis. Next we define and design models for market competition and financial flexibility. Finally we use empirical test and robustness test to analyze the relation between market competition and financial flexibility.The fourth part is the study on product market competition, financial flexibility and corporate performance. Firstly, we make theoretical analysis on financial flexibility and corporate performance. And then we analyze the influence of product market competition on financial flexibility and corporate performance. On the basis of theoretical analysis we put forward hypothesis. Next we define variables and design models. Finally we use empirical test and robustness test to analyze the relation between market competition, financial flexibility and corporate performance.The fifth part is summary. Through empirical analysis we make conclusions and point implications and prospect. Then we point out the disadvantages of this thesis.In this thesis, from 2008 to 2013 China’s Shanghai and Shenzhen A-share listed companies as samples, the researchers found that:(1) China’s listed companies generally maintain certain financial flexibility. Facing the challenges from product market competition, corporations will raise both cash flexibility and liabilities flexibility to increase financial flexibility. (2)The relationship between financial flexibility and corporate performance is inverted U. Namely with the increase of financial flexibility, corporate performance will firstly rise and then decline. (3) Product market competition can enhance the prevention and use value, and relieve agent problems. Specifically, with product market competition becoming more intense, the inverted U curve between financial flexibility and corporate performance will be gentler, and the equilibrium point of the inverted U curve will move right. The corporate performance will become maximum only when the financial flexibility level is higher.There are two main innovations in this thesis:First of all, this thesis expands research area of financial flexibility from capital market to product market. It reveals internal mechanism on how product market competition influences financial flexibility. And that widen the analysis of factors those influence financial flexibility. Secondly, this thesis studies the product market competition, financial flexibility and corporate performance at the same time. It enriches the studies on economic consequences of product market competition and financial flexibility. And corporations will better respond to product market competition.