Study on investment-cash flow sensitivities’ impacts on financing constraints of Chinese A-Share listed firms

Abstract

This paper illustrates the empirical evidence concerning investment-cashflow sensitivity and financing constraints of Chinese A-share listed firms. The previous study reveals the multiple theories including information asymmetry theory and the principal-agents theory to explain the issue, while it is not clear what influence financing constraints have on the investment-cashflow sensitivity for China’s companies. The purpose of this paper is to investigate the relationship between the investment-cash flow sensitivity and financing constraints in company decision-making of China’s A-share listed companies. The study relies on internal cash flow analysis, and creatively through the factor analysis method to construct a classification of comprehensive index company financing constraint degree. The study results found that company investment is positively related to internal cashflow, which confirms the asymmetry theory. Further analysis founds that low financing constraints companies are not affected by internal cashflow while high financing constraints companies are highly restricted by internal cashflow.