A balancing act: Managing financial constraints and agency costs to minimize investment inefficiency in the Chinese market

By A. Guariglia, Junhong Yang. 2016

230 citations recorded by the source corpus.

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, while for over-investing firms, the sensitivities increase with a wide range of firm-specific measures of agency costs.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/e92c33877383671f2af35ec8c6ff68ab9c0be9b4

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Citations in the corpus

To what extent does corporate liquidity affect M&A decisions, method of payment and performance? Evidence from China (2017, background): “…empires and/or to stimulate regional economic growth through M&As, which may not maximize shareholders' wealth, but increase instead the resources and power in their hands and give them the chance to stand out in the political competition for promotion (Liu and Lu, 2007; Guariglia and Yang, 2016b).”