Analysis To The Association Between Investment And Internal Cash Flow Of The Corporations

Investment and financing theory of the corporations has always been the focus of scholars and economic professors, and the effect of financing activities to investing activities is often the main focus. Generally, there are two ways of financing for a corporation:the first, external financing; the second, internal financing. Internal financing is much easier and cheaper relative to external financing, and it has an important effect on investing activities of the corporations. The paper takes internal cash flow as internal financing, verifying the effect of internal financing to investing activities by exploring and validating the association between investment and internal cash flow.The paper redefines investment and internal cash flow, and then, has a look to the association between investment and internal cash flow in the review of financing constrained hypothesis and free cash flow agency cost hypothesis. The paper sees the situation of investment and internal cash flow of the manufacturing corporations in Chinese stock market between 2006 and 2009. It makes the Pearson correlation inspection to some factors which have potential effect on the association between investment and internal cash flow and establishes the multiple regression models to analysis the association between investment and internal cash flow empirically. It also introduces the cross terms to explore the reasons why the association between investment and internal cash flow is exist.With the result of the regression analyses, we know that the association between investment and internal cash flow does exist, but why it exists, we could not see clearly. In another way, we know whichever hypothesis we referred is based on the information asymmetry between each other, thus, our advice is to eliminate the information asymmetry, optimize the investing and financing activities and improve social resource allocation efficiency after all of these analyses.