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Yang, Junhong and Alessandra, Guariglia (2016) 'A Balancing Act: Managing Financial Constraints and Agency Costs to Minimize Investment Inefficiency in the Chinese Market.' Journal of Corporate Finance, 36. pp. 111-130.

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Using a large panel of Chinese listed firms over the period 1998–2014, we document strong evidence of investment inefficiency, which we explain through a combination of financing constraints and agency problems. Specifically, we argue that firms with cash flow below (above) their optimal level tend to under- (over-)invest as a consequence of financial constraints (agency costs). Furthermore, focusing on under-investing firms, we highlight that the sensitivities of abnormal investment to free cash flow rise with traditionally used measures of financing constraints, while for over-investing firms, the sensitivities increase with a wide range of firm-specific measures of agency costs.

Item Type: Journal Article
SOAS Departments & Centres: Departments and Subunits > School of Finance & Management
ISSN: 09291199
Copyright Statement: Copyright © 2015 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY license (
DOI (Digital Object Identifier):
Date Deposited: 20 Apr 2020 07:16

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