A balancing act: managing financial constraints and agency costs to minimize investment inefficiency in the Chinese market
Research output: Contribution to journal › Article
- University of Sheffield
Using a large panel of Chinese listed firms over the period 1998-2014, we document strong evidence of investment inefficiency, which we explain through a combination of financing constraints and agency problems. Specifically, we argue that firms with cash flow below (above) their optimal level tend to under (over-)invest as a consequence of financial constraints (agency costs). Furthermore, focusing on under-investing firms, we highlight that the sensitivities of abnormal investment to free cash flow rise with traditionally used measures of financing constraints, whilst for over-investing firms, the sensitivities increase with a wide range of firm-specific measures of agency costs.
|Journal||Journal of Corporate Finance|
|Early online date||20 Oct 2015|
|Publication status||Published - Feb 2016|
- business and economics