The Relationship Of Fixed Asset Investment And Cash Flow

We analyze the relation between cash flows and fixed asset investments of China listed manufacture companies. The results show that it’s U-shaped. When cash flow is negative, it shows negative relation with investment. But if it’s positive, cash flow is positively related with investment. As a characteristic for Chinese firms, we investigate how the ownership influences the invest-cash flow sensitivity and find that government controlled companies show higher sensitivity than private firms, especially when the levels of cash flow are low. Moreover, government controlled firms invest more than private firms when the cash flow is negative and the invest opportunity is low. We also analyze how the economic policy affects government controlled firms and the results prove that those firms invest more because they have multiple objection. Not like private firms, the state-owned enterprise not only consider economic goal but also care about social benefits.