Corporate investment, government control, and financing channels : evidence from China's Listed Companies
Document Type
Journal article
Source Publication
Journal of Corporate Finance
Publication Date
6-1-2012
Volume
18
Issue
3
First Page
433
Last Page
450
Publisher
Elsevier BV
Keywords
Corporate investment; Government control; Cash flows; Financing channels; China
Abstract
We investigate the relation between the internally generated cash flows and fixed asset investments of Chinese firms and find that it is U-shaped. Cash flow and investment are negatively related for low levels of cash flow but positively related for high levels of cash flow. We find that government controlled listed firms have greater investment–cash flow sensitivities than do privately controlled listed companies, especially on the left-hand side of the U-shaped curve where cash flow is negative. However, the difference in sensitivities appears only among firms that possess few profitable investment opportunities. We attribute this finding to the government having multiple socio-economic objectives, which leads to increased capital expenditures by the firms it controls when internal funds are abundant and when internal funds are negative. There is no evidence that access to finance and soft budget constraints explain the differences between the investment–cash flow sensitivities of government controlled and privately controlled listed firms.
DOI
10.1016/j.jcorpfin.2012.01.004
Print ISSN
09291199
E-ISSN
18726313
Funding Information
The National Natural Science Foundation of China supported this study (Project No.:70702031, 70802067). Firth acknowledges support from a grant from the Research Grants Council of the HKSAR (LU340209).
Publisher Statement
Copyright © 2011 Elsevier B.V. All rights reserved.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Firth, M., Malatesta, P. H., Xin, Q., & Xu, L. (2012). Corporate investment, government control, and financing channels: Evidence from China's Listed Companies. Journal of Corporate Finance, 18(3). 433-450. doi: 10.1016/j.jcorpfin.2012.01.004