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

Year 2014, Volume: 4 Issue: 3, 449 - 456, 01.09.2014

Yuanyao Ding Xu Qian

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 the effect of management’s ownership and both their differences between the central state owned companies and the non-state owned companies as well. The sensitivity of investment to internal cash flow in China’s central state-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 than entrenchment 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”. Asymmetrical information causes under-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 Financial Constraints Entrenchment Effect

Year 2014, Volume: 4 Issue: 3, 449 - 456, 01.09.2014

Yuanyao Ding Xu Qian

Abstract

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Details

Other ID JA87TV39DN
Journal Section Research Article
Authors

Yuanyao Ding This is me

Xu Qian This is me

Publication Date September 1, 2014
Published in Issue Year 2014 Volume: 4 Issue: 3

Cite

APA Ding, Y., & Qian, X. (2014). Investment Cash Flow Sensitivity and Effect of Managers’ Ownership: Difference between Central Owned and Private Owned Companies in China. International Journal of Economics and Financial Issues, 4(3), 449-456.
AMA Ding Y, Qian X. Investment Cash Flow Sensitivity and Effect of Managers’ Ownership: Difference between Central Owned and Private Owned Companies in China. IJEFI. September 2014;4(3):449-456.
Chicago Ding, Yuanyao, and Xu Qian. “Investment Cash Flow Sensitivity and Effect of Managers’ Ownership: Difference Between Central Owned and Private Owned Companies in China”. International Journal of Economics and Financial Issues 4, no. 3 (September 2014): 449-56.
EndNote Ding Y, Qian X (September 1, 2014) Investment Cash Flow Sensitivity and Effect of Managers’ Ownership: Difference between Central Owned and Private Owned Companies in China. International Journal of Economics and Financial Issues 4 3 449–456.
IEEE Y. Ding and X. Qian, “Investment Cash Flow Sensitivity and Effect of Managers’ Ownership: Difference between Central Owned and Private Owned Companies in China”, IJEFI, vol. 4, no. 3, pp. 449–456, 2014.
ISNAD Ding, Yuanyao - Qian, Xu. “Investment Cash Flow Sensitivity and Effect of Managers’ Ownership: Difference Between Central Owned and Private Owned Companies in China”. International Journal of Economics and Financial Issues 4/3 (September 2014), 449-456.
JAMA Ding Y, Qian X. Investment Cash Flow Sensitivity and Effect of Managers’ Ownership: Difference between Central Owned and Private Owned Companies in China. IJEFI. 2014;4:449–456.
MLA Ding, Yuanyao and Xu Qian. “Investment Cash Flow Sensitivity and Effect of Managers’ Ownership: Difference Between Central Owned and Private Owned Companies in China”. International Journal of Economics and Financial Issues, vol. 4, no. 3, 2014, pp. 449-56.
Vancouver Ding Y, Qian X. Investment Cash Flow Sensitivity and Effect of Managers’ Ownership: Difference between Central Owned and Private Owned Companies in China. IJEFI. 2014;4(3):449-56.