Investment Cash Flow Sensitivity and Effect of Managers' Ownership: Difference between Central Owned and Private Owned Companies in China

Yuanyao Ding and Xu Qian
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Yuanyao Ding: Department of Economics, Business School of Ningbo University Ningbo 315211, China
Xu Qian: Department of Finance, Business School of Ningbo University Ningbo 315211, China

International Journal of Economics and Financial Issues, 2014, vol. 4, issue 3, 449-456

Abstract: Based on panel data of the listed companies in China's stock market A during a period of year 2007 - 2010, we made an empirical study on what drives the investment cash flow sensitivity and theeffect of management's ownership and boththeir differences between the central stateowned companiesand then on-stateowned companiesas well.The sensitivity of investment to internal cash flow in China'scentralstate-owned companies can be explained by hypothesis of free cash flow It is the cost of agency that causes over-investment behaviors ,and the management's ownership appears significant enhancement effect rather thanentrenchment effect. However,the sensitivity of investment to internal cash flow in China's non-state owned companies supports the explanation of hypothesis of financial constraints .A symmetrical information causesunder- investment behaviors of the firms.In the mean while,the entrenchment effect of manages' ownership dominates the enhancement effect in non-state owned companies

Keywords: Internal Cash Flow; External FinancialConstraints; Entrenchment Effect. (search for similar items in EconPapers)
JEL-codes: G01 G31 G32 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (2)

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