Financial Flexibility,Investment Expenditure And Enterprise Performance

The current state of the global economy is not encouraging,and China’s domestic market is likewise going through a difficult time of growth and transition.The dual operating environment’s volatility forces enterprise management to consider not just significant strategic prospects but also a complicated and unstable scenario that cannot be understated.Senior management typically decide to save more cash and increase the enterprise’s flexibility in order to avoid the crises that this uncertainty may bring about.The enterprise’s "financial flexibility" reflects this adaptability.One of the most crucial financial actions that businesses take is investing.It is not only directly connected to the future cash flow of businesses,but also to their sustainable growth.Companies engage in this activity to generate unpredictable profits.Maximizing capital growth and enterprise value is the goal.In an emergency,using financial flexibility flexibly can assist businesses in making timely investments in initiatives with a positive net present value and benefiting the business as a whole.It should be mentioned,nonetheless,that effective investment will boost businesses’ development potential and strengthen their ability to compete in the market.Ineffective investments will just squander company resources and are not good for business growth.Taking into account the aforementioned context,this study makes use of the principal-agent theory,the capital market imperfection theory,the financing constraint theory,and the free cash flow hypothesis.It aims to choose listed businesses in Shanghai and Shenzhen from 2015 to 2020 as examples.Multiple regression is used to experimentally assess the link between financial adaptability,investment spending,and company success.The Richardson residual model is used to gauge how well businesses invest their funds.Overinvestment and underinvestment are the two states into which the sample businesses are split,and the effect of financial flexibility on inefficient investment is further investigated.The research results show that:(1)According to Richardson’s projected investment model,underinvestment affects the majority of Chinese businesses,albeit the severity of overinvestment is greater than that of underinvestment.(2)The performance of the firm is significantly impacted by financial flexibility,and the link between the two has an "inverted U" shape and an "interval" effect.Financial flexibility can ease financial difficulties,lower corporate financing costs,allow businesses to get the money they need for the best possible price,increase corporate performance,and improve investment efficiency;however,as financial flexibility reserves rise,so do the costs and opportunities associated with holding cash as well as the principal-agent issue for businesses.(3)Financial adaptability influences business investment spending favorably,and the relationship between corporate performance and investment spending follows an inverted U-shaped curve.The link between financial flexibility and business performance is formed like an inverted U,with investment spending serving as a partial intermediate.Further segmentation reveals that financial flexibility may exacerbate enterprise overinvestment while simultaneously ameliorating enterprise underinvestment.(4)Compared with state-owned enterprises,non-state-owned enterprises need to reserve financial flexibility to meet the development of enterprises;the reserve financial flexibility of state-owned listed enterprises may lead to more serious over-investment,and the lack of financial flexibility of non-state-owned listed enterprises will lead to more serious under-investment.There are two innovations in this paper: First,adopt a new research perspective.Most scholars only pay attention to the positive impact of financial flexibility on corporate performance,and there is little research on the ’ threshold effect ’ under this relationship.Based on the detailed analysis of the interaction mechanism between financial flexibility and corporate performance,this paper further adds investment expenditure variables to study whether it has an impact on the financial flexibility effect and what the impact mechanism is.It expands the understanding of financial flexibility and enriches the content of financial flexibility research.Second,the use of new evaluation indicators.Second,the use of new evaluation indicators.The measurement of corporate performance in this paper not only includes the net profit margin(ROA)of total assets commonly used in the existing literature,but also expands the assessment of corporate growth performance,measured by Tobin Q,and more comprehensively and objectively measures corporate performance indicators.