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The Relationship Research On Corporate Cash Holdings And Investment—Cash Flow Sensitivity Under Financing Constrains

Posted on:2017-03-14Degree:MasterType:Thesis
Country:ChinaCandidate:L L RenFull Text:PDF
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Information asymmetry and the agency problem existed in reality increase enterprise financing costs, far higher than the cost of enterprise internal financing, and constraint the liquidity, which further increases the risk of the enterprise financing constraints. Therefore, the investment decision may effect by others, except investment demand factors, such as enterprise inner financial condition. Fazzari. Steven M(1988) put forward the financing constraints hypothesis on the basis of information asymmetry theory. And he verified that under Financing Constraints, investment spending are more sensitive to the enterprise endogenous financing, and endogenous financing mainly comes from enterprise operating cash flow. Therefore, Financing constraints make investment sensitive to cash flow, but for the size of the sensitive degree, scholars have produced inconsistent point of view. KZ(1997),another representative in this area, believed that they are not the simple monotonous positive correlation. Therefore, understanding the relationship between them correctly also should take into account other factors that can cause cash flow distribution, such as excessive investment behavior due to agency problems, and enterprise internal financial reserves behavior. Based on this, the article analyzed the level of sensitivity between investment and cash flow from the angle of enterprise financial reserves. To a certain extent, the higher financial reserves will make the external financing constraints easier, also reducing the financing cost. At the same time, the high financial reserves(sags) also make the preventive reserves for future investment opportunities, furthermore enterprise can use the current cash flow used for investment demand and raised the sensitivity of the investment to cash flow. On the other hand, if the enterprise has fewer financial reserves, it will increase financial reserves(sags) from the current cash flow for the sake of precautionary motive, this will increase the cash-cash flow sensitivity, which will weaken the investment- cash flow sensitivity.Therefore, the paper put forward three hypotheses, that is the relationship between investment- cash flow sensitivity and cash holdings, the relationship between financing constraints, cash holdings, and investment- cash flow sensitivity. From the perspective of financial reserves(sags), enterprise holds the lower cash holdings, the higher investment- cash flow sensitivity; Furthermore, when financing constraints taken into account, investment- cash flow sensitivity is decided jointly by this two, and we assumes that under the condition of financing constraints, investment- cash flow sensitivity are positively correlated with cash holdings.Proved by the empirical analysis, the above three assumptions support the theory of the article. So from the perspective of financial sags, the article verified that the investment- cash flow sensitivity is decided jointly by financing constraints and cash holdings. Under the condition of high financing constraints, there are positive correlation relationship between cash holdings and investment- cash flow sensitivity.
Keywords/Search Tags:Financial Constraint, Degree of Information Asymmetry, Financial Flexibility, Cash Holdings, Investment-Cash Flow Sensitivity
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