Regional disparities and investment-cash flow sensitivity: Evidence from Chinese listed firms

Sun, Jianjun and Yamori, Nobuyoshi (2009): Regional disparities and investment-cash flow sensitivity: Evidence from Chinese listed firms.

Abstract

In China, regional disparities are important. We examine the difference in the sensitivity of investment to cash flow between firms in inland regions and those in coastal regions. By using the financial data of Chinese listed firms, we found that firms in inland regions rely more on their internal funds in terms of their investment activities than those in coastal regions and that the sensitivity gap between inland and coastal firms widened in the recent contractionary monetary policy period. This suggests that firms in inland regions are harder to obtain outside funds due to unfavorable social and economic environments for inland firms. Our findings suggest that capital markets in China respond rationally to the potential impact of regional disparities on a firm’s performance.

• Item Type: MPRA Paper
• Language: English
• Keywords: sensitivity of investment to cash flow; sensitivity gap; regional disparities; Chinese economy
• Subjects: G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading; G - Financial Economics > G3 - Corporate Finance and Governance > G31 - Capital Budgeting ; Fixed Investment and Inventory Studies ; Capacity; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance

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