The Product Market Competition,Financing Constraint And Investment Scale Of Listed Firms

In the twentieth century, many scholars have done research in the relationship between product market competition and investment behavior from multiple aspects. Some of them have started from investment size and financing restriction, some of them have set about research from internal financing. There have been studies centered on free cash flow and investment and more from differences in industry——that was known as product market competition.As for efficiency of investment, some scholars favored to explain this fact from Internal Entrust relations. They held the view that the relationship between management layers and investors restricted investment. However, this paper maintained the opposite view that admittedly the internal factors like restriction from the constrict between managers and investors existed, the external factors like financing method, financing structure, financing cost and restriction have been far more vital than those internal factors. What’s more, any enterprise is one element in a large machine, which, irresistibly, leads to close tie to specific market—known as product competition market.Anchored in industrial organizational theory, theory of financing constraints and information asymmetry theory, this paper assumed that the relationship between financing environment, financing constraints, financing channel and investment scale would be varied with different extent of competition within diverse industries. For example, the consumers, labor force, production in manufacturing industry would be fairly disparate from those elements in textile industry. Similarly, financial condition, liability structure, free cash flow in varying degrees caused by competition would act on next investment decision.Developed from neoclassicism, information asymmetry theory to principle-agency theory, studies in investment acting has been enriched and completed, resulting in more practical analyzing. The investment research should not be restricted only in analyzing internal factors, such as internal governance, contradiction between managers and investors, but more in decipher effects from external financing conditions.This paper simply descripted the theoretical foundation for investment research as neoclassicism, governance structure theory, information asymmetry theory, which provided powerful evidence for relative study in the future.The listed companies from the year 2009 to 2014 were all included to do with regression analysis. The result showed apparent negative correlations between financing constraints and investment, and both internal and external financing method were positive to investment size. Secondly, the more competitive market the companies were in, the more conservative investment decision they would have. Thirdly, I divided listed companies according to different competition market and found that the more competitive companies showed more reliance in internal cash flow other than external financing condition. However, the lower competitive market, as understood like monopolized market, relied more on external money as money from banks. Fourthly, we grouped samples based on high or low HHI, the result of which presented the constraints from financing were weakened with the increase in competition.This paper showed both consideration with market competition and financing condition to investment, including grouping with HHI, which enrich the study centered in market competition, financing and investment, and provide latest data to test previous assumptions.