The Empirical Research On The Effect Of Financial Flexibility To Enterprise’s Inefficient Investment

Investment plays a key role in China’s economic development, the success orfailure of investment decision and investment efficiency can impact on the survivaland development of enterprises, even can impact on the efficiency of society’sresources allocation. Financial flexibility, as the sign of the enterprise’s ability tograsp investment opportunities and adapt to the environment, is getting moreattention. Because of the factors such as Asymmetry of Information, Principal-agentConflict and something else, managers often distort investment behavior, such asself-defense, leading to enterprise’s inefficient investment.Firstly, this paper defined the concepts of financial flexibility and inefficientinvestment, the object of the study is the listed companies in the chemical industry.Then the paper verified the effect of financial flexibility to enterprise’s inefficientinvestment by some related theories and literatures.Secondly, build financial flexibility index method, inefficient investmentresidual model and a multiple–linear regression model, using the panel data of150chemical listed companies in china from2011to2013, then measure the levels offinancial flexibility and the degrees of inefficient investments of these companiesfrom2011to2013. Further, inspect financial flexibility to inefficient investment byempirical tests.In this paper, the empirical measurements and the results show that:(1) this iscommon that financial flexibility level is low and the investment is inefficiency oflisted companies in chemical industry from2011to2013.(2) Financial elasticity significantly influence the efficiency of investment, specific as follows: Financialflexibility has a positive influence on enterprise over-investment, while has anegative influence on enterprise under-investment.Finally, this paper puts forward countermeasures and suggestions on building ofthe early-warning system of "financial flexibility-investment". Including buildcomplete and reliable financial flexibility index evaluation system, broaden thefinancing channels and strengthen supervision and management of the early warningsystem. This paper provides some theoretical guidance and empirical experience toultimately improve enterprise investment efficiency. And also to promote presentsituation of investment inefficiency, governance and guard against inefficientinvestment behaviors.