Adjustment Of Our Country Listed Company To Study The Impacts Of Financial Flexibility

Financial flexibility is a firm’s capacity to mobilize its financial resources in orderto take preventive and exploitive actions in response to uncertain futurecontingencies by holding more cash and spare debt capacity. Recent two financialcrises (1997and2008) give opportunities to study financial flexibility. Westernscholars’ studies by survey show that most CFOs of western firms treat financialflexibility as the first factor to decide the capital structure. Classical capital structuretheory stresses the capital cost and pays attention to tax shields and bankruptcy risktradeoff to obtain the optimal capital structure. But more and more studies found thatthere are some phenomena that traditional capital structure theory cannot explain,such as large listed company keeping lower debt ratio, holding more cash etc, whichcan be explained through the research of financial flexibility,The source of financial flexibility has two main aspects: the holdings of spare cashand the remaining debt ability. This paper analyses the financial flexibility of thelisted companies in China by studying the cash lever, using annual financialstatements data from2004to2009.The results shows that:1.Under the impact of theglobal financial crisis and the economic adjustment of China, the cash ratio in2008is higher than before, which demonstrates that firms obtain financial flexibility byholding more cash;2. the cash ratio in2009is higher than that of2008;3.Comparingto non-cyclical industries, the cyclical industries keeps less cash, which means thecyclical industries obtain financial flexibility less by holding cash. Also, this studyshows that the final control type held no significant relationship between cash levels.