An Empirical Study Of The Relationship Between Corporate Owership Structure And Financial Flexibility

Financial flexibility is a low-cost that an enterprise can meet future capital needs and deal with the impact of future uncertain events at this low-cost and the ability to grasp the favorable investment opportunities. Financial flexibility mainly comes from cash holdings and unused debt capacity of enterprises. Many domestic and foreign scholars have proved that companies with financial flexibility were more likely to go through the financial crisis and seize investment opportunities. Therefore, under the current severe economic situation, the studies that about financial flexibility seem significant. Now existing literature are mostly about financial flexibility and business value, financial flexi bility and investment behavior. Few studies involved the relationship between ownership structure and financial flexibility. The ownership structure is the cornerstone of corporate governance and plays an important role in the development of an enterprise. Therefore, this study not only has theoretical significance but realistic significance.On the basis of predecessor, this paper constructed financial flexibility index using principal component analysis with the cash indicators, leverage indicators and external financing indicators. We study the relationship between ownership structure and financial flexibility through empirical research from the equity properties and equity ownership concentration aspects. In the aspects of ownership property, we choose the proportion of tradable shares and institutional shares as the representative indexes; in the ownership concentration aspect we choose the proportion of the largest shareholder, the proportion of the largest shareholder in the square and so on as the representative indexes.This paper selects 2009- 2014 Shanghai and Shenzhen A-share company data as the initial sample data to build five different models to examine the relationships between independent and dependent variables. The results of this paper are: there is a negative correlation between the proportion of tradable shares and financial flexibility while the proportion of institutional investors’ shares, ownership concentration and financial flexibility exists a positive relationship. There is no significant correlation between the proportion of managerial ownership and financial flexibility. This study set the foundation for the study of the relationship between ownership structure and financial flexibility.